Durable Goods, Inflation Risk, and Equilibrium Asset Prices

Eraker, Bjørn; Shaliastovich, Ivan; Wang, Wenyu

doi:10.1093/rfs/hhv049

Cited by 51 publications

(20 citation statements)

References 73 publications

(108 reference statements)

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“…Eraker et al . () extend the homoskedastic model by durable goods and inflation. Based on the Bayesian MCMC method, they estimate an EIS of 2.39.…”

Section: Consumers' Preferences and The Eismentioning

confidence: 99%

Intertemporal Substitution in Consumption: A Literature Review

Thimme

2016

Journal of Economic Surveys

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Abstract. This paper reviews the status quo of the empirical literature about the elasticity of intertemporal substitution (EIS) in consumption. Aiming to answer the question what the true magnitude of the parameter really is, it discusses several recent advances of the theory and highlights challenges for the estimation. Although the general discussion still seems to be prevailed by Hall's early EIS estimates close to zero, we show that several deviations from the time-additive constant relative risk aversion model speak in favor of considerably higher values. Our treatment is supposed to provide researchers a hint at which parameter is a reasonable and incontrovertible choice for the calibration of models in macroeconomics and finance.

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“…Eraker et al . () extend the homoskedastic model by durable goods and inflation. Based on the Bayesian MCMC method, they estimate an EIS of 2.39.…”

Section: Consumers' Preferences and The Eismentioning

confidence: 99%

Intertemporal Substitution in Consumption: A Literature Review

Thimme

2016

Journal of Economic Surveys

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“…Piazzesi and Schneider (2006), Hasseltoft (2012), Bansal and Shaliastovich (2013) and others who provide empirical evidence for this channel for a single non-durable consumption good. Recently, Eraker, Shaliastovich, and Wang (2014) extended the literature in the context of durable consumption as well. They also showed that the negative correlation between inflation and consumption is highly pronounced when consumption goods exhibit durability.…”

Section: Introductionmentioning

confidence: 99%

Macroeconomic Effects of Inflationary Shocks with Durable and Non-Durable Consumption

Mallick

Mohsin

2016

Open Econ Rev

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In this paper we show that inflation, both in the short and long run, negatively affects durable and non-durable consumption and output, and positively influences the current account balance. In particular, the impact of inflation is more pronounced on durable relative to non-durable goods. Using quarterly data from Canada, the UK and the USA, we demonstrate that these findings are consistent and robust across different econometric specifications. An open economy model with durable and non-durable consumption, households with labor/leisure choice and money introduced through cash-in-advance (CIA) constraint on consumption expenditure alone could meaningfully explain these empirical observations. Our empirical findings of non-neutral and negative effects of inflation on real growth are significant for many economic models in the asset pricing literature that support a negative co-movement of stock prices and expected inflation. Moreover, such positive inflation premium in our model could provide economic explanation for a positive slope of the nominal term structure in the data.

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“…To understand the nominal channel as described by Bansal and Shaliastovich (2013) and Eraker, Shaliastovich, and Wang (2016), it is useful to consider the following Fisher-type equation:…”

Section: Model Solutionmentioning

confidence: 99%

How Important Are Inflation Expectations for the Nominal Yield Curve?

Gómez-Cram

Yaron²

2020

The Review of Financial Studies

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Macrofinance term structure models rely too heavily on the volatility of expected inflation news as a source for variations in nominal bond yield shocks. We develop and estimate a model featuring inflation nonneutrality and preference shocks. The stochastic volatility of inflation and consumption govern bond risk premiums movements, whereas preference shocks generate fluctuations in real rates. The model accounts for key bond market features without resorting to an overly dominating expected inflation channel. The estimation shows that preference shocks are strongly negatively correlated with market distress factors and that real rate news is the dominant driver of nominal yield shocks.

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Durable Goods, Inflation Risk, and Equilibrium Asset Prices

Cited by 51 publications

References 73 publications

Intertemporal Substitution in Consumption: A Literature Review

Intertemporal Substitution in Consumption: A Literature Review

Macroeconomic Effects of Inflationary Shocks with Durable and Non-Durable Consumption

How Important Are Inflation Expectations for the Nominal Yield Curve?

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