Asset Prices, Commodity Prices, and Money: A General Equilibrium, Rational Expectations Model

Glenn Boyle () and Leslie Young

American Economic Review, 1988, vol. 78, issue 1, 24-45

Abstract: An expected-utility-maximizing investor spends his portfolio income on commodities and real balances. Commodity prices and asset payoffs are determined endogenously in general equilibrium. The impact of commodity prices on investor welfare yields surprising relationships among the expected returns required on financial assets. Real (monetary) disturbances can generate a neg ative (positive) correlation between inflation and equity payoffs, but the expected nominal return on the equity can still be less (greater) than the nominal interest rate. The expected nominal return on an indexed bond can be greater than on a nominal bond. The expected real return on an equity can be lower than on an indexed bond. Copyright 1988 by American Economic Association.

Date: 1988
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