Arbitrage pricing and the stochastic inflation tax in a multisector monetary economy

Research output: Contribution to journalArticle

2 Scopus citations

Abstract

A dynamic general equilibrium multifactor asset pricing model for a monetary economy with capital accumulation and multisector production is constructed. Equilibrium Clower constraints on some investment goods and some consumption goods are imposed. An equilibrium APT model is constructed where the covariance between the inflation tax, distorted equilibrium investment returns, and fundamental forcing processes are important in determining equilibrium risk prices. The model is used to address issues concerning the relative importance of real and nominal factors in asset pricing raised in recent papers by Chen, Roll, and Ross (1986) and Cochrane (1991, 1992).

Original languageEnglish (US)
Pages (from-to)569-597
Number of pages29
JournalJournal of Economic Dynamics and Control
Volume19
Issue number3
DOIs
StatePublished - Apr 1995
Externally publishedYes

Keywords

  • Asset pricing
  • Monetary business cycles

ASJC Scopus subject areas

  • Economics and Econometrics
  • Control and Optimization
  • Applied Mathematics

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