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

Matthias Hagmann and Carlos Lenz
Additional contact information
Matthias Hagmann: HEC-University of Lausanne and FAME

FAME Research Paper Series from International Center for Financial Asset Management and Engineering

Abstract: We shed new light on the negative relationship between real stock returns or real interest rates and (i) 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 decreased since the 1980’s.

Keywords: Real stock returns; Real rate of interest; Expected and unexpected inflation; 'Fisher hypothesis'; Structural VAR (search for similar items in EconPapers)
JEL-codes: E44 G1 (search for similar items in EconPapers)
Date: 2004-10
New Economics Papers: this item is included in nep-ets, nep-fin and nep-mac
References: Add references at CitEc
Citations: View citations in EconPapers (5)

Downloads: (external link)
http://www.swissfinanceinstitute.ch/rp118.pdf (application/pdf)
Our link check indicates that this URL is bad, the error code is: 404 Not Found (http://www.swissfinanceinstitute.ch/rp118.pdf [301 Moved Permanently]--> https://www.sfi.ch/rp118.pdf [302 Found]--> https://www.sfi.ch/en/rp118.pdf)

Related works:
Working Paper: Real Asset Returns and Components of Inflation: A Structural VAR Analysis (2005)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:fam:rpseri:rp118

Access Statistics for this paper

More papers in FAME Research Paper Series from International Center for Financial Asset Management and Engineering Contact information at EDIRC.
Bibliographic data for series maintained by Ridima Mittal (rps@sfi.ch).