The Zero-Beta Interest Rate / Sebastian Di Tella, Benjamin M. Hébert, Pablo Kurlat, Qitong Wang.

Format:

Book

Author/Creator:

Di Tella, Sebastian.

Contributor:

National Bureau of Economic Research.

Hébert, Benjamin M.

Kurlat, Pablo.

Wang, Qitong.

Series:

Working Paper Series (National Bureau of Economic Research) no. w31596.

NBER working paper series no. w31596

Language:

English

Physical Description:

1 online resource: illustrations (black and white);

Place of Publication:

Cambridge, Mass. National Bureau of Economic Research 2023.

Summary:

We use equity returns to construct a time-varying measure of the interest rate that we call the zero-beta rate: the expected return of a stock portfolio orthogonal to the stochastic discount factor. The zero-beta rate is high and volatile. In contrast to safe rates, the zero-beta rate fits the aggregate consumption Euler equation remarkably well, both unconditionally and conditional on monetary shocks, and can explain the level and volatility of asset prices. We claim that the zero-beta rate is the correct intertemporal price.

Notes:

Print version record

August 2023.