The Zero-Beta Interest Rate

Sebastian Di Tella, Benjamin Hebert, Pablo Kurlat and Qitong Wang

No 31596, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: We use equity returns to construct a time-varying measure of the interest rate that we call the zero-beta rate: the expected return of a stock portfolio orthogonal to the stochastic discount factor. The zero-beta rate is high and volatile. In contrast to safe rates, the zero-beta rate fits the aggregate consumption Euler equation remarkably well, both unconditionally and conditional on monetary shocks, and can explain the level and volatility of asset prices. We claim that the zero-beta rate is the correct intertemporal price.

JEL-codes: E30 E4 G12 (search for similar items in EconPapers)
Date: 2023-08
New Economics Papers: this item is included in nep-fdg, nep-fmk and nep-ger
Note: AP EFG
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