Asset Prices and Interest Rates in Cash-In-Advance Models
This paper develops a method to solve and simulate cash-in-advance models
of money and asset prices. The models are calibrated to US data spanning the
period from 1890 to 1987 and are used to study some empirical regularities
observed in the US data over this period. The phenomena which are the focus of
the paper include the average level of stock returns and returns on nominal
bonds, the covariation of realized real interest rates and real asset returns
with inflation, and the ability of nominal interest rates to predict inflation
and nominal stock returns.
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