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

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  • Alberto Giovannini
  • Pamela Labadie

Abstract

This paper develops a method to solve and simulate cash-in-advance models of money and asset prices. The models are calibrated to US data spanning the period from 1890 to 1987 and are used to study some empirical regularities observed in the US data over this period. The phenomena which are the focus of the paper 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.

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Bibliographic Info

Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 3109.

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Date of creation: Sep 1989
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Publication status: published as Journal of Political Economy, Volume 6, No. 5, December 1991
Handle: RePEc:nbr:nberwo:3109

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  1. Edward C. Prescott, 1986. "Theory ahead of business cycle measurement," Staff Report, Federal Reserve Bank of Minneapolis 102, Federal Reserve Bank of Minneapolis.
  2. 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.
  3. Jaffe, Jeffrey F & Mandelker, Gershon, 1976. "The "Fisher Effect" for Risky Assets: An Empirical Investigation," Journal of Finance, American Finance Association, American Finance Association, vol. 31(2), pages 447-58, May.
  4. S. Grossman & R. Shiller, . "The Determinants of the Variability of Stock Market Price," Rodney L. White Center for Financial Research Working Papers, Wharton School Rodney L. White Center for Financial Research 18-80, Wharton School Rodney L. White Center for Financial Research.
  5. Robert J. Hodrick & Narayana Kocherlakota & Deborah Lucas, 1989. "The Variability of Velocity in Cash-In-Advance Models," NBER Working Papers 2891, National Bureau of Economic Research, Inc.
  6. Frederic S. Mishkin, 1981. "The Real Interest Rate: An Empirical Investigation," NBER Working Papers 0622, National Bureau of Economic Research, Inc.
  7. R. Mehra & E. Prescott, 2010. "The equity premium: a puzzle," Levine's Working Paper Archive 1401, David K. Levine.
  8. Kaul, Gautam, 1987. "Stock returns and inflation : The role of the monetary sector," Journal of Financial Economics, Elsevier, Elsevier, vol. 18(2), pages 253-276, June.
  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. Labadie, Pamela, 1989. "Stochastic inflation and the equity premium," Journal of Monetary Economics, Elsevier, Elsevier, vol. 24(2), pages 277-298, September.
  11. 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, Elsevier, vol. 6(1), pages 107-123, March.
  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, January.
  13. 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.
  14. Robert B. Barsky, 1986. "The Fisher Hypothesis and the Forecastability and Persistence of Inflation," NBER Working Papers 1927, National Bureau of Economic Research, Inc.
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