Hostname: page-component-78c5997874-xbtfd Total loading time: 0 Render date: 2024-11-05T16:25:21.152Z Has data issue: false hasContentIssue false
  • English
  • Français

Expectations of Real Interest Rates and Aggregate Consumption: Empirical Tests

Published online by Cambridge University Press:  01 December 2009

Wayne E. Ferson
Get access Rights & Permissions [Opens in a new window]

Extract

Recently, the finance literature has included empirical analysis of consumption in asset pricing models based on the cross-equation restrictions implied by optimality of a representative agent's consumption and investment plan. These studies have required some specification of an aggregate utility function, and power (constant relative risk aversion) utility has been predominant. The present paper extends this body of research by including models with constant absolute, as well as constant relative, risk aversion.

Type
Selected Papers from the 1983 Annual Conference
Information
Journal of Financial and Quantitative Analysis , Volume 18 , Issue 4 , December 1983 , pp. 477 - 497
Copyright
Copyright © School of Business Administration, University of Washington 1983

Access options

Get access to the full version of this content by using one of the access options below. (Log in options will check for institutional or personal access. Content may require purchase if you do not have access.)

References

[1]Breeden, D. T. “Changing Consumption and Investment Opportunities and the Valuation of Securities.” Ph.D. dissertation, Stanford University (1977).Google Scholar
[2]Breeden, D. T. “An Intertemporal Asset Pricing Model with Stochastic Consumption and Investment Opportunities.” Journal of Financial Economics. Vol. 7 (September 1979), pp. 265–296.CrossRefGoogle Scholar
[3]Breeden, D. T., and Litzenberger, R. H.. “Prices of State-Contingent Claims Implicit in Option Prices,” Journal of Business. Vol. 51 (October 1978), pp. 621–651.CrossRefGoogle Scholar
[4]Drown, D., and Gibbons, M.. “A Simple Econometric Approach for Utility-Based Asset Pricing Models.” Unpublished paper, Stanford University (February 1983).Google Scholar
[5]Carlson, J. A. “Short-Term Interest Rates as Predictors of Inflation: Comment.” American Economic Review, Vol. 67 (June 1977), pp. 469–475.Google Scholar
[6]Cornell, B. “The Consumption Based Asset Pricing Model: A Note on Potential Tests and Applications.” Journal of Financial Economics, Vol. 9 (March 1981), pp. 103–108.CrossRefGoogle Scholar
[7]Fama, E. “Short-Term Interest Rates as Predictors of Inflation.” American Economic Review, Vol. 65 (June 1975), pp. 269–282.Google Scholar
[8]Ferson, W. “Expected Real Interest Rates and Consumption in Efficient Financial Markets: Theory and Tests.” Ph.D. dissertation, Stanford University (1982).Google Scholar
[9]Flavin, M. “The Adjustment of Consumption to Changing Expectations about Future Income.” Journal of Political Economy, Vol. 89 (October 1981), pp. 974–1009.CrossRefGoogle Scholar
[10]Friend, I., and Blume, M. E.. “The Demand for Risky Assets.” American Economic Review, Vol. 65 (December 1975), pp. 900–922.Google Scholar
[11]Friend, I., and Hasbrouck, J.. “The Effect of Inflation on the Profitability and Valuation of U.S. Corporations.” In Savings, Investment and Capital Markets in an Inflationary Economy, Sarnat, M. and Szego, G., eds. Cambridge, MA: Ballinger Publishing Co. (1982)Google Scholar
[12]Gallant, R. A. “Three-Stage Least-Squares Estimation for a System of Simutaneous, Nonlinear, Implicit Equations.” Journal of Econometrics, Vol. 5 (1977), pp. 71–88.CrossRefGoogle Scholar
[13]Gibbons, M. R., and Ferson, W.. “Testing Asset Pricing Models with Changing Expectations and an Unobservable Market Portfolio.” Research paper no. 684, Stanford University (February 1983).Google Scholar
[14]Grauer, F. L. A., and Litzenberger, R. H.. “The Pricing of Commodity Futures Contracts, Nominal Bonds, and other Risky Assets under Commodity Price Uncertainty.” Journal of Finance. Vol. 34 (March 1979), pp. 69–84.CrossRefGoogle Scholar
[15]Grossman, S. “On the Efficiency of Competitive Stock Markets Where Traders Have Diverse Information.” Journal of Finance, Vol. 31 (1976), pp. 573–596.CrossRefGoogle Scholar
[16]Grossman, S., and Shiller, R. J.. “The Determinants of the Variability of Stock Market Prices.” American Economic Review, Vol. 71 (May 1981), pp. 222–229.Google Scholar
[17]Grossman, S. “Consumption Correlatedness and Risk Measurement in Economies with Non-Traded Assets and Heterogeneous Information.” Journal of Financial Economics, Vol. 10 (July 1982), pp. 195–210.CrossRefGoogle Scholar
[18]Hakansson, N. H. “Optimal Investment and Consumption Strategies under Risk for a Class of Utility Functions.” Econometrica, Vol. 38 (September 1970), pp. 587–607.CrossRefGoogle Scholar
[19]Hall, R. E. “Stochastic Implications of the Life Cycle Permanent Income Hypothesis: Theory and Evidence.” Journal of Political Economy, Vol. 86 (April 1978), pp. 971–987.CrossRefGoogle Scholar
[20]Hall, R. E. “Intertemporal Substitution in Consumption.” Working paper, Stanford University (June 1981).CrossRefGoogle Scholar
[21]Hansen, L. P., and Singleton, K. J.. “Stochastic Consumption, Risk Aversion, and the Temporal Behavior of Asset Returns.” Journal of Political Economy, Vol. 91 (April 1983), pp. 249–265.CrossRefGoogle Scholar
[22]Hansen, L. P. “Generalized Instrumental Variables Estimation of Nonlinear Rational Expectations Models.” Econometrica, Vol. 50 (September 1982), pp. 1269–1286.CrossRefGoogle Scholar
[23]Harberger, A. C., ed. The Demand for Durable Goods. Chicago, IL: University of Chicago Press (1960).Google Scholar
[24]Hess, P. J., and Bicksler, J. L.. “Capital Asset Prices versus Time Scries Models as Predictors of Inflation: The Expected Real Rate of Interest and Market Efficiency.” Journal of Financial Economics, Vol. 2 (December 1975), pp. 341–360.CrossRefGoogle Scholar
[25]Huizinga, J., and Mishkin, F.. “The Measurement of Short-Term Real Interest Rates on Assets with Different. Risk Characteristics.” Unpublished paper, University of Chicago (March 1983).CrossRefGoogle Scholar
[26]Ibbotson, R. G., and Sinquefield, R. A.. Stocks, Bonds, Bills and Inflation: Historical Returns (1926–1978). The Financial Analysts Research Foundation (1979).Google Scholar
[27]Kraus, A., and Litzenberger, R. H.. “Market Equilibrium in a Multiperiod State Preference Model with Logarithmic Utility.” Journal of Finance, Vol. 30 (December 1975), pp. 1213–1228.Google Scholar
[28]Logue, D. E., and Willet, T. D.. “A Note on the Relation between the Rate and Variability of Inflation.” Economica, Vol. 43 (May 1976), pp. 151–158.CrossRefGoogle Scholar
[29]Lucas, R. E. “Econometric Policy Evaluation: A Critique.” In The Phillips Curve and Labor Market, Brunner, K. and Meltzer, A., eds. Amsterdam: North Holland Publishing Co. (1979).Google Scholar
[30]Lucas, R. E. “Asset Prices in an Exchange Economy.” Econometrica, Vol. 46 (November 1978), pp. 1429–1446.CrossRefGoogle Scholar
[31]MaCurdy, T. “Asymptotic Properties of Quasi-Maximum Likelihood Estimators and Test Statistics.” Technical paper No. 14. Stanford, CA: National Bureau of Economic Research (1981).CrossRefGoogle Scholar
[32]Marquardt, D. W. “An Algorithm for Least-Squares Estimation of Nonlinear Parameters.” Journal of Soc. Ind. and Applied Math (1963).CrossRefGoogle Scholar
[33]Merton, R. C. “An Intertemporal Capital Asset Pricing Model.” Econometrica, Vol. 41 (September 1973), pp. 867–887.CrossRefGoogle Scholar
[34]Nelson, C. R., and Schwert, G. W.. “Short-Term Interest Rates as Predictors of Inflation: On Testing the Hypothesis that the Real Rate of Interest is Constant.” American Economic Review, Vol. 67 (June 1977), pp. 478–486.Google Scholar
[35]Pratt, J. W. “Risk Aversion in the Small and in the Large.” Econometrica, Vol. 32 (January–April 1964), pp. 122–136.CrossRefGoogle Scholar
[36]Rubinstein, M. “The Strong Case for the Generalized Logarithmic Utility Model as the Premier Model of Financial Markets.” Journal of Finance, Vol. 31 (May 1976a), pp. 551–572.CrossRefGoogle Scholar
[37]Rubinstein, M. “The Valuation of Uncertain Income Streams and the Pricing of Options.” Bell Journal of Economics, Vol. 7 (Autumn 1976b), pp. 407–425.CrossRefGoogle Scholar
[38]Schwert, G. W. “The Adjustment of Stock Prices to Information about Inflation.” Journal of Finance. Vol. 36 (March 1981), pp. 15–30.CrossRefGoogle Scholar
[39]Silvey, S. D.Statistical Inference, New York: Halsted Press (John Wiley & Sons, Inc.) (1975).Google Scholar
[40]Stapleton, R. C., and Subrahmanyam, M. G.. “A Multiperiod Equilibrium Asset Pricing Model,” Econometrica. Vol. 46 (September 1978), pp. 1077–1096.CrossRefGoogle Scholar
[41]Weber, W. E. “The Effect of Interest Rates on Aggregate Consumption.” American Economic Review, Vol. 60 (September 1970), pp. 591–600.Google Scholar
[42]Zellner, A. “An Efficient Method of Estimating Seemingly Unrelated Regressions and Tests of Aggregation Bias,” Journal of the American Statistical Association, Vol. 57 (1962), pp. 348–368.CrossRefGoogle Scholar