Post by Sapphire Capital on Nov 27, 2008 22:48:39 GMT 4
Monetary Policy Effects on Financial Risk Premia
Paul Soderlind
Manchester School, Vol. 76, Issue 6, pp. 690-707, December 2008
Abstract:
The effect of monetary policy on financial risk premia is analysed in a simple general equilibrium model with sticky wages and an optimizing central bank. Analytical results show that equity risk premia and term premia are higher under inflation targeting than under output targeting, and that inflation risk premia are higher for policies that strike a balance between output and inflation stability (and achieve a social optimum) than for policies that target only one of them.
papers.ssrn.com/sol3/papers.cfm?abstract_id=1284024
Paul Soderlind
Manchester School, Vol. 76, Issue 6, pp. 690-707, December 2008
Abstract:
The effect of monetary policy on financial risk premia is analysed in a simple general equilibrium model with sticky wages and an optimizing central bank. Analytical results show that equity risk premia and term premia are higher under inflation targeting than under output targeting, and that inflation risk premia are higher for policies that strike a balance between output and inflation stability (and achieve a social optimum) than for policies that target only one of them.
papers.ssrn.com/sol3/papers.cfm?abstract_id=1284024