Back to the 1980s or Not? The Drivers of Inflation and Real Risks in Treasury Bonds / Carolin Pflueger.

Format:

Book

Author/Creator:

Pflueger, Carolin.

Contributor:

National Bureau of Economic Research.

Series:

Working Paper Series (National Bureau of Economic Research) no. w30921.

NBER working paper series no. w30921

Language:

English

Physical Description:

1 online resource: illustrations (black and white);

Place of Publication:

Cambridge, Mass. National Bureau of Economic Research 2023.

Summary:

I use nominal and real bond risks as new moments to discipline a New Keynesian asset pricing model, where supply shocks, demand shocks, and monetary policy are the fundamental drivers of inflation. Endogenously time-varying risk premia imply that nominal bond risks--as measured by their stock market beta--are a forward-looking indicator of stagflation risks. Calibrating the model separately for the 1980s and the 2000s, I show that positive nominal bond betas in the 1980s resulted from a "perfect storm" of supply shocks and a reactive monetary policy rule, but not from either supply shocks or monetary policy in isolation.

Notes:

Print version record

February 2023.