Federal Reserve Bank of Richmond Economic
Выпуски:
Опубликовано на портале: 11-01-2003
Pierre-Daniel G. Sarte
Federal Reserve Bank of Richmond Economic.
1998.
Vol. Volume 84/4 .
P. 53-72.
It is well known that when inflation is stochastic, Fisher's theoretical equation,
according to which the nominal interest rate is the sum of the real rate and the
expected inflation rate, fails to hold. Under stochastic inflation, the Fisher equation
must be amended to include a compensation for inflation risk: the inflation risk
premium. Consequently, this article uses a simple consumption-based asset pricing
model to investigate the significance of the inflation risk premium. Given the relationship
between U.S. consumption growth and inflation, we find that historical estimates
of the inflation risk premium are inconsequential. This result emerges because inflation
surprises and unexpected movements in consumption growth exhibit little covariation
in U.S. data. Moreover, using two different preference specifications, we also show
that this result is quite unrelated to the notion that the equity risk premium is
generally small in consumption-based asset pricing models.

