Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/152870
Authors: 
Cappiello, Lorenzo
Guéné, Stéphane
Year of Publication: 
2005
Series/Report no.: 
ECB Working Paper 436
Abstract: 
This paper studies the role of inflation in the determination of financial asset prices. We estimate an Intertemporal Capital Asset Pricing Model à la Merton (1973), with inflation as an independent source of risk, for France and Germany. Our study also allows us to evaluate how the different nature of the French and German monetary policies before 1999 as well as the convergence process towards the single currency might have affected the role of inflation in the pricing of financial assets. We find that inflation is a significant explanatory factor for the pricing of stocks and government bonds in the two countries. Moreover, while there seems to be no clear structural break in the impact of inflation on asset prices after Stage Three of Economic and Monetary Union, such an impact has been increasingly similar in the two countries after 1999.
Subjects: 
business cycles
GARCH-in-Mean
Intertemporal CAPM
JEL: 
C32
C61
E44
G12
Document Type: 
Working Paper

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