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Seminarios académicos y conferencias

François Gourio, Chicago FED

Risk premia at the ZLB: a macroeconomic interpretation

29 Septiembre 2016 - 17 hrs.

Sala 209, Facultad de Ciencias Económicas y Administrativas UC

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Historically, high inflation is associated with low stock returns, leading investors to fear inflation. We document that this correlation changes after 2008, and positive signals about inflation are now associated with high stock returns. We interpret this as a change in the conditional covariance of economic activity and inflation. We then show how the zero lower bound (ZLB) on nominal interest rates can explain this change of covariance owing to the changing propagation mechanisms at the ZLB. This has important implications for asset prices since covariances determine risk premia. A fairly standard New Keynesian macroeconomic model generates positive term premia and inflation risk premia in normal times (far from the zero lower bound), but these premia fall as the economy becomes closer to the ZLB.