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Asset Prices and Interest Rates in Cash-in-Advance Models

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  • Giovannini, Alberto
  • Labadie, Pamela

Abstract

The authors develop a method to solve and simulate cash-in-advance models of money and asset prices. They calibrate the models to U.S. data spanning the period 1890-1987 and study some empirical regularities observed over this period. The phenomena of interest include the average level of stock returns and returns on nominal bonds, the covariation of realized real interest rates and real asset returns with inflation, and the ability of nominal interest rates to predict inflation and nominal stock returns. Copyright 1991 by University of Chicago Press.

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Bibliographic Info

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

Volume (Year): 99 (1991)
Issue (Month): 6 (December)
Pages: 1215-51

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Handle: RePEc:ucp:jpolec:v:99:y:1991:i:6:p:1215-51

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References

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  1. Barsky, Robert B., 1987. "The Fisher hypothesis and the forecastability and persistence of inflation," Journal of Monetary Economics, Elsevier, vol. 19(1), pages 3-24, January.
  2. Frederic S. Mishkin, 1981. "The Real Interest Rate: An Empirical Investigation," NBER Working Papers 0622, National Bureau of Economic Research, Inc.
  3. Kaul, Gautam, 1987. "Stock returns and inflation : The role of the monetary sector," Journal of Financial Economics, Elsevier, vol. 18(2), pages 253-276, June.
  4. Hodrick, Robert J & Kocherlakota, Narayana R & Lucas, Deborah, 1991. "The Variability of Velocity in Cash-in-Advance Models," Journal of Political Economy, University of Chicago Press, vol. 99(2), pages 358-84, April.
  5. Grossman, Sanford J & Shiller, Robert J, 1981. "The Determinants of the Variability of Stock Market Prices," American Economic Review, American Economic Association, vol. 71(2), pages 222-27, May.
  6. Edward C. Prescott, 1986. "Theory ahead of business cycle measurement," Quarterly Review, Federal Reserve Bank of Minneapolis, issue Fall, pages 9-22.
  7. Romer, Christina D, 1986. "Is the Stabilization of the Postwar Economy a Figment of the Data?," American Economic Review, American Economic Association, vol. 76(3), pages 314-34, June.
  8. Mehra, Rajnish & Prescott, Edward C., 1985. "The equity premium: A puzzle," Journal of Monetary Economics, Elsevier, vol. 15(2), pages 145-161, March.
  9. Finn E. Kydland, 1989. "The role of money in a business cycle model," Discussion Paper / Institute for Empirical Macroeconomics 23, Federal Reserve Bank of Minneapolis.
  10. LeRoy, Stephen F, 1984. "Nominal Prices and Interest Rates in General Equilibrium: Money Shocks," The Journal of Business, University of Chicago Press, vol. 57(2), pages 177-95, April.
  11. Labadie, Pamela, 1989. "Stochastic inflation and the equity premium," Journal of Monetary Economics, Elsevier, vol. 24(2), pages 277-298, September.
  12. Milton Friedman & Anna Jacobson Schwartz, 1970. "Monetary Statistics of the United States: Estimates, Sources, Methods," NBER Books, National Bureau of Economic Research, Inc, number frie70-1, May.
  13. Jaffe, Jeffrey F & Mandelker, Gershon, 1976. "The "Fisher Effect" for Risky Assets: An Empirical Investigation," Journal of Finance, American Finance Association, vol. 31(2), pages 447-58, May.
  14. Giovannini, Alberto & Jorion, Philippe, 1987. "Interest rates and risk premia in the stock market and in the foreign exchange market," Journal of International Money and Finance, Elsevier, vol. 6(1), pages 107-123, March.
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