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Consumption, Inflation Risk, and Real Interest Rates: An Empirical Analysis

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  • Chan, Louis K C
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    Abstract

    The consumption-based asset pricing model is used to examine the relation between inflation and interest rates. To the extent that inflation is correlated with real consumption opportunities, expected real interest rates should incorporate a premium for inflation covariance risk. The empirical results suggest a statistically reliable premium for inflation covariability risk in short-term interest rates. Moreover, part of the time-series variation in inflation covariability risk is predictable. Copyright 1994 by University of Chicago Press.

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    Bibliographic Info

    Article provided by University of Chicago Press in its journal Journal of Business.

    Volume (Year): 67 (1994)
    Issue (Month): 1 (January)
    Pages: 69-96

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    Handle: RePEc:ucp:jnlbus:v:67:y:1994:i:1:p:69-96

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    Web page: http://www.journals.uchicago.edu/JB/

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    Cited by:
    1. Guler, Bulent & Ozlale, Umit, 2004. "Is there a flight to quality due to inflation uncertainty?," MPRA Paper 7929, University Library of Munich, Germany.
    2. Stefania D'Amico & Don H. Kim & Min Wei, 2008. "Tips from TIPS: the informational content of Treasury Inflation-Protected Security prices," Finance and Economics Discussion Series, Board of Governors of the Federal Reserve System (U.S.) 2008-30, Board of Governors of the Federal Reserve System (U.S.).
    3. Thomas C. Melzer, 1997. "To conclude: keep inflation low and, in principle, eliminate it," Review, Federal Reserve Bank of St. Louis, issue Nov, pages 3-7.

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