AFFI International Conference 2017

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Good Inflation, Bad Inflation, and the Pricing of Real Assets

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Low consumption growth tends to occur together with either very high or very low inflation. The probability of low expected consumption growth estimated from a Markov chain for consumption growth and inflation is highly correlated with a measure for the likelihood of consumption disasters suggested by Wachter (2013). A simple asset pricing model with recursive utility and unobservable states reproduces the time variation in volatilities and correlations of stock and bond returns very well.

Author(s):

Ilya Dergunov    
Research Center SAFE
Germany

Christoph Meinerding    
Goethe University Frankfurt
Germany

Christian Schlag    
Goethe University Frankfurt
Germany

 

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