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Real Asset Returns and Components of Inflation: A Structural VAR Analysis

Hagmann, Matthias and Lenz, Carlos. (2005) Real Asset Returns and Components of Inflation: A Structural VAR Analysis. WWZ Discussion Papers, 2005 (11).

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Abstract

We shed new light on the negative relationship between real stock returns or real interest rates and (i) ex post inflation, (ii) expected inflation, (iii) unexpected inflation and (iv) changes in expected inflation. Using the structural vector autoregression methodology, we propose a decomposition of those series into economically interpretable components driven by aggregate supply, real demand and money market shocks. Our empirical results support Fama’s ’proxy hypothesis’ and the predictions of several general equilibrium models. Concerning the negative relation between the real rate of interest and inflation, we find that the Mundell-Tobin model and the explanation of Fama and Gibbons (1982) are not competitors: both add insight in their own way about the reasons for the negative correlation between those variables. However, the importance of the latter explanation has decreased since the 1980’s.
Faculties and Departments:06 Faculty of Business and Economics
06 Faculty of Business and Economics > Departement Wirtschaftswissenschaften
12 Special Collections > WWZ Publications > WWZ Discussion Papers and Working Papers
UniBasel Contributors:Lenz, Carlos
Item Type:Working Paper
Publisher:WWZ, University of Basel
Number of Pages:39
Note:Publication type according to Uni Basel Research Database: Discussion paper / Internet publication
Language:English
Identification Number:
  • handle: RePEc:bsl:wpaper:2005/11
Last Modified:09 Mar 2018 10:53
Deposited On:08 Mar 2018 08:49

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