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Habits die hard: implications for bond and stock markets internationally

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  • Dr. Thomas Nitschka
  • Shajivan Satkurunathan

Abstract

This paper assesses whether the global fall in inflation expectations together with increased fear of recession, the economic mechanism that drives asset prices in a model with consumption habits, help to explain the downward trajectory in nominal government bond yields and the stock price dynamics of six major economies from 1988 to 2019. We calibrate the habit model for each country separately. For most countries, focusing the calibrations on matching average ten-year bond yields allows one to generate artificial time series of bond yields and price-consumption ratios that follow the long-run time series patterns of their counterparts in the data.

Suggested Citation

  • Dr. Thomas Nitschka & Shajivan Satkurunathan, 2021. "Habits die hard: implications for bond and stock markets internationally," Working Papers 2021-08, Swiss National Bank.
    • Handle: RePEc:snb:snbwpa:2021-08
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    More about this item

    Keywords

    Consumption habit; return; risk premium; yields;
    All these keywords.

    JEL classification:

    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets

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