![Are the dynamic linkages between the macroeconomy and asset prices time-varying? [An article from: Journal of Economics and Business]](https://www.ebooknetworking.net/books/B00/0P6/bigB000P6XKPQ.jpg)
Are the dynamic linkages between the macroeconomy and asset prices time-varying? [An article from: Journal of Economics and Business]
Book Details
Author(s)M. Guidolin, S. Ono
PublisherElsevier
ISBN / ASINB000P6XKPQ
ISBN-13978B000P6XKP6
MarketplaceFrance 🇫🇷
Description
This digital document is a journal article from Journal of Economics and Business, published by Elsevier in 2006. The article is delivered in HTML format and is available in your Amazon.com Media Library immediately after purchase. You can view it with any web browser.
Description:
We estimate a number of multivariate regime switching VAR models on a long monthly US data set for eight variables that include excess stock and bond returns, the real T-bill yield, predictors used in the finance literature (default spread and the dividend yield), and three macroeconomic variables (inflation, industrial production growth, and a measure of real money growth). Heteroskedasticity may be accounted for by making the covariance matrix a function of the regime. We find evidence of four regimes and of time-varying covariances. We show that the best in-sample fit is provided by a four state model in which the VAR(1) component fails to be regime-dependent. We interpret this as evidence that the dynamic linkages between financial markets and the macroeconomy have been stable over time. The four-state model can be helpful in forecasting applications and provides one-step ahead predicted Sharpe ratios.
Description:
We estimate a number of multivariate regime switching VAR models on a long monthly US data set for eight variables that include excess stock and bond returns, the real T-bill yield, predictors used in the finance literature (default spread and the dividend yield), and three macroeconomic variables (inflation, industrial production growth, and a measure of real money growth). Heteroskedasticity may be accounted for by making the covariance matrix a function of the regime. We find evidence of four regimes and of time-varying covariances. We show that the best in-sample fit is provided by a four state model in which the VAR(1) component fails to be regime-dependent. We interpret this as evidence that the dynamic linkages between financial markets and the macroeconomy have been stable over time. The four-state model can be helpful in forecasting applications and provides one-step ahead predicted Sharpe ratios.
