TY  - UNPD
A1  - Dergunov, Ilya
A1  - Meinerding, Christoph
A1  - Schlag, Christian
T1  - Extreme inflation and time-varying expected consumption growth
T2  - SAFE working paper ; No. 334
N2  - In a parsimonious regime switching model, we find strong evidence that expected consumption growth varies over time. Adding inflation as a second variable, we uncover two states in which expected consumption growth is low, one with high and one with negative expected inflation. Embedded in a general equilibrium asset pricing model with learning, these dynamics replicate the observed time variation in stock return volatilities and stock- bond return correlations. They also provide an alternative derivation for a measure of time-varying disaster risk suggested by Wachter (2013), implying that both the disaster and the long-run risk paradigm can be extended towards explaining movements in the stock-bond correlation.
T3  - SAFE working paper - 334 
KW  - Long-run risk
KW  - inflation
KW  - recursive utility
KW  - filtering
KW  - disaster risk
Y1  - 2022
UR  - http://publikationen.ub.uni-frankfurt.de/frontdoor/index/index/docId/61999
UR  - https://nbn-resolving.org/urn:nbn:de:hebis:30:3-619992
UR  - https://ssrn.com/abstract=4001498
N1  - Another version of this paper is available at: Dergunov, Ilya and Meinerding, Christoph and Schlag, Christian, Extreme Inflation and Time-Varying Expected Consumption Growth (April 2, 2019). Available at SSRN: https://ssrn.com/abstract=2832845 or http://dx.doi.org/10.2139/ssrn.2832845
N1  - We gratefully acknowledge research and financial support from the Leibniz Center for Financial Research SAFE (formerly Research Center SAFE, funded by the State of Hessen initiative for research LOEWE).
IS  - This version: January 3, 2022
PB  - SAFE
CY  - Frankfurt am Main
ER  -