Arbitrage pricing and the stochastic inflation tax in a multisector monetary economy

A dynamic general equilibrium multifactor asset pricing model for a monetary economy with capital accumulation and multisector production is constructed. Equilibrium Clower constraints on some investment goods and some consumption goods are imposed. An equilibrium APT model is constructed where the...

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Bibliographic Details
Published in:Journal of economic dynamics & control 1995-04, Vol.19 (3), p.569-597
Main Author: Reffett, Kevin L.
Format: Article
Language:English
Subjects:
Arbitrage
Asset pricing
Asset valuation
Business cycles
Economic models
Economic theory
Equilibrium
Equilibrium models
Inflation
Investment returns
Monetary business cycles
Pricing
Stochastic processes
Studies
Taxes
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Summary:A dynamic general equilibrium multifactor asset pricing model for a monetary economy with capital accumulation and multisector production is constructed. Equilibrium Clower constraints on some investment goods and some consumption goods are imposed. An equilibrium APT model is constructed where the covariance between the inflation tax, distorted equilibrium investment returns, and fundamental forcing processes are important in determining equilibrium risk prices. The model is used to address issues concerning the relative importance of real and nominal factors in asset pricing raised in recent papers by Chen, Roll, and Ross (1986) and Cochrane (1991, 1992).
ISSN:0165-1889
1879-1743
DOI:10.1016/0165-1889(93)00771-U