Getting to the Core: Inflation Risks Within and Across Asset Classes

Xiang Fang, Yang Liu () and Nikolai Roussanov

No 30169, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: Do “real” assets protect against inflation? Core inflation betas of stocks are negative while energy betas are positive; currencies, commodities, and real estate also mostly hedge against energy inflation but not core. These hedging properties are reflected in the prices of inflation risks: only core inflation carries a negative risk premium, and its magnitude is consistent both within and across asset classes, uniquely among macroeconomic risk factors. While high core inflation tends to be followed by low real output, consumption, and dividend payouts, it impacts asset prices through both cash-flow and discount rate channels. The relative contribution of core and energy changes over time, helping explain the time-varying correlation between stock and bond returns. A two-sector New Keynesian model qualitatively accounts for these facts and implies that the changing stock-bond correlation can be attributed to the shifting importance of supply and demand shocks in driving energy inflation over time.

JEL-codes: E31 E44 E5 F31 G12 G15 (search for similar items in EconPapers)
Date: 2022-06
New Economics Papers: this item is included in nep-dge, nep-fmk, nep-ifn, nep-mac and nep-mon
Note: AP CF EFG IFM ME
References: Add references at CitEc
Citations: View citations in EconPapers (14)

Downloads: (external link)
http://www.nber.org/papers/w30169.pdf (application/pdf)

Related works:
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:nbr:nberwo:30169

Ordering information: This working paper can be ordered from
http://www.nber.org/papers/w30169

Access Statistics for this paper

More papers in NBER Working Papers from National Bureau of Economic Research, Inc National Bureau of Economic Research, 1050 Massachusetts Avenue Cambridge, MA 02138, U.S.A.. Contact information at EDIRC.
Bibliographic data for series maintained by ().