Institutional Affiliation: University of Michigan
|Cointegration and Consumption Risks in Asset Returns|
with , : w13108
We argue that the cointegrating relation between dividends and consumption, a measure of long run consumption risks, is a key determinant of risk premia at all investment horizons. As the investment horizon increases, transitory risks disappear, and the asset's beta is dominated by long run consumption risks. We show that the return betas, derived from the cointegration-based VAR (EC-VAR) model, successfully account for the crosssectional variation in equity returns at both short and long horizons; this is not the case when the cointegrating restriction is ignored. Our evidence highlights the importance of cointegration-based long run consumption risks for financial markets.
Published: Ravi Bansal & Robert Dittmar & Dana Kiku, 2009. "Cointegration and Consumption Risks in Asset Returns," Review of Financial Studies, Oxford University Press for Society for Financial Studies, vol. 22(3), pages 1343-1375, March. citation courtesy of
|Gold, Fiat Money, and Price Stability|
with , : w10171
Which monetary regime is associated with the most stable price level? A commodity money regime such as the classical gold standard has long been associated with long-run price stability. But critics of the day argued that the regime was associated with too much short-run price variability and argued for reforms that look much like modern versions of price-level targeting. In this paper, we develop a dynamic stochastic general equilibrium model that we use to examine price dynamics under four alternative regimes. They are the gold standard, Irving Fisher's compensated dollar proposal, and two regimes with paper money in which the central bank uses an interest rate rule to run monetary policy. In the first, the central bank uses an interest rate rule to target the price of gold. In the secon...
Published: Bordo, Michael D., Robert D. Dittmar, and William T. Gavin. "Gold, Fiat Money, and Price Stability." B.E. Journal of Macroeconomics: Topics in Macroeconomics 7, 1 (2007). citation courtesy of