Nominal Bond Returns and the Money Growth Rate in a Simple Equilibrium Model
Posted: 21 Sep 1998
In this paper, we fit the pricing kernel for U.S. Treasury securities using the SAINTS model of Constantinides (1992). Under a simple version of the stochastic growth model, knowledge of the pricing kernel identifies the (continuously-compounded) money growth rate implied by bond prices. This growth rate is used in a standard stochastic simulation of the model economy in order to examine the implied properties of nominal and real quantities in the model. By construction, this parameterization of the model is consistent with the unconditional properties of bond prices. We find that this implied monetary growth process improves the fit of the model in several dimensions but the behavior of yields still seems incompatible with the model.
JEL Classification: G12, G14
Suggested Citation: Suggested Citation