The Real Channel for Nominal Bond-Stock Puzzles / Mikhail Chernov, Lars A. Lochstoer, Dongho Song.

Format:

Book

Author/Creator:

Chernov, Mikhail.

Contributor:

National Bureau of Economic Research.

Lochstoer, Lars A.

Song, Dongho.

Series:

Working Paper Series (National Bureau of Economic Research) no. w29085.

NBER working paper series no. w29085

Language:

English

Physical Description:

1 online resource: illustrations (black and white);

Place of Publication:

Cambridge, Mass. National Bureau of Economic Research 2021.

Summary:

We present evidence that the mix of transitory and permanent shocks to consumption is changing over time. We identify three regimes: two highly persistent regimes where either permanent or transitory shocks are relatively more dominant, and a disaster regime that is largely transitory. We study implications of this finding for asset prices. The transition from the second to the first regime in the mid-1990s makes the correlation between equities and bonds switch sign from positive to negative as in the data. The real bond and equity yield curves are approximately flat. The nominal bond curve is upward sloping. These results are achieved without relying on the nominal channel too much. That is, as in the data, the variation of inflation in the model is under 40% as a fraction of variation in nominal yields.

Notes:

Print version record

July 2021.