Habits die hard: implications for bond and stock markets internationally

Thomas Nitschka and Shajivan Satkurunathan

No 2021-08, Working Papers from Swiss National Bank

Abstract: This paper assesses whether the global fall in inflation expectations together with increased fear of recession, the economic mechanism that drives asset prices in a model with consumption habits, help to explain the downward trajectory in nominal government bond yields and the stock price dynamics of six major economies from 1988 to 2019. We calibrate the habit model for each country separately. For most countries, focusing the calibrations on matching average ten-year bond yields allows one to generate artificial time series of bond yields and price-consumption ratios that follow the long-run time series patterns of their counterparts in the data.

Keywords: Consumption habit; return; risk premium; yields (search for similar items in EconPapers)
JEL-codes: G12 G15 (search for similar items in EconPapers)
Pages: 58 pages
Date: 2021
New Economics Papers: this item is included in nep-cwa and nep-fmk
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Persistent link: https://EconPapers.repec.org/RePEc:snb:snbwpa:2021-08

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