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Does Fiscal Policy Matter for Stock-Bond Return Correlation? / Erica X.N. Li, Tao Zha, Ji Zhang, Hao Zhou.
- Format:
- Book
- Author/Creator:
- Li, Erica X.N.
- Series:
- Working Paper Series (National Bureau of Economic Research) no. w27861.
- NBER working paper series no. w27861
- Language:
- English
- Physical Description:
- 1 online resource: illustrations (black and white);
- Place of Publication:
- Cambridge, Mass. National Bureau of Economic Research 2020.
- Summary:
- We explore an important role of monetary-fiscal policy interactions in explaining three stylized facts: (1) a positive correlation of stock and bond returns in 1971-2001 and a negative one after 2001, (2) a negative correlation of consumption and inflation in 1971-2001 and a positive one after 2001, and (3) the coexistence of a positive bond risk premium and a negative correlation of stock and bond returns. Our general equilibrium model shows that these correlation changes across two policy regimes are driven by a combination of technology and investment shocks, while positive risk premiums are driven by the technology shock only.
- Notes:
- Print version record
- September 2020.
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