A theory of the nominal character of stock securities

Bernard Dumas () and Marcel Savioz ()

No 2020-03, Working Papers from Swiss National Bank

Abstract: We construct recursive solutions for, and study the properties of the dynamic equilibrium of an economy with three types of agents: (i) household/investors who supply labor with a finite elasticity, consume a large variety of goods that are not perfect substitutes and trade government bonds; (ii) firms that produce those varieties of goods, receive productivity shocks and set prices in a Calvo manner; (iii) a government that collects an exogenous fiscal surplus and acts mechanically, buying and selling bonds in accordance with a Taylor policy rule based on expected inflation. In this setting we show that stock market returns are much less than one-for-one related to inflation over a one-year holding period, which means that stock securities have a strong nominal character. We also show that their nominal character diminishes as the length of the stock-holding period increases, in accordance with empirical evidence.

Keywords: Stock market; monetary policy; inflation-targeting (search for similar items in EconPapers)
JEL-codes: E44 E52 (search for similar items in EconPapers)
Pages: 55 pages
Date: 2020
New Economics Papers: this item is included in nep-cba, nep-gen and nep-mac
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Related works:
Working Paper: A Theory of the Nominal Character of Stock Securities (2020)
Working Paper: A Theory of the Nominal Character of Stock Securities (2020)
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