Webinar: Downward Nominal Rigidities and Term Premia

Downward Nominal Rigidities and Term Premia
Presentor: Francois Gourio- Federal Reserve Bank of Chicago
8:00 PM EST, Thursday February 23, US Time
8:00 AM Friday, February 24, Vietnamese Time

Abstract

We develop a macro-finance asset pricing model with downward nominal rigidi-ties and show that it helps explain both secular and cyclical movements in term premia. The asymmetry in nominal rigidities implies that when inflation is high, nominal rigidities are less relevant, leading to larger output and inflation responses to a productivity shock. As a result, when inflation is high, the consumption-inflation covariance is more negative, making the bond premium larger. This mechanism accounts for the downward trend in the term premium since the early 1980s due to the decline of inflation. Our model also generates substantial cyclical variation in term premia (i.e. the Campbell-Shiller or Fama-Bliss predictability of bond returns), as well as other compelling macroeconomic and finance properties, such as the negative skewness of output, positive skewness of inflation, and time variation in the covariance of stock and bond returns.

About Francois Gourio

Dr. Gourio’s research and teaching interests lie mostly in the fields of macro-finance, investment, and business cycles. He is currently a senior economist and economic advisor at the Federal Reserve Bank of Chicago. Before joining the Fed, Dr. Gourio was an associate professor of economics at Boston University. He also served as associate editor at the Journal of Monetary Economics. Dr. Gourio has published his research in top economics journals, including American Economics Review, Review of Economic Studies, Journal of Monetary Economics, Journal of Financial Economics, and American Economic Journal: Macroeconomics.

You can find more information about Dr. Gourio’s research using the following website https://scholar.google.com/citations?user=TrMXxs4AAAAJ&hl=e