Measuring market and inflation risk premia in France and in Germany

Lorenzo Cappiello and Stéphane Guéné

No 436, Working Paper Series from European Central Bank

Abstract: This paper studies the role of inflation in the determination of financial asset prices. We estimate an Intertemporal Capital Asset Pricing Model à la Merton (1973), with inflation as an independent source of risk, for France and Germany. Our study also allows us to evaluate how the different nature of the French and German monetary policies before 1999 as well as the convergence process towards the single currency might have affected the role of inflation in the pricing of financial assets. We find that inflation is a significant explanatory factor for the pricing of stocks and government bonds in the two countries. Moreover, while there seems to be no clear structural break in the impact of inflation on asset prices after Stage Three of Economic and Monetary Union, such an impact has been increasingly similar in the two countries after 1999. JEL Classification: C32, C61, E44, G12

Keywords: business cycles; GARCH-in-Mean; Intertemporal CAPM (search for similar items in EconPapers)
Date: 2005-02
Note: 234084
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (4)

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Persistent link: https://EconPapers.repec.org/RePEc:ecb:ecbwps:2005436

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