Back to the 1980s or Not? The Drivers of Inflation and Real Risks in Treasury Bonds

Abstract

I use nominal and real bond risks as new moments to discipline a New Keynesian asset pricing model, where supply shocks, demand shocks, and monetary policy are the fundamental drivers of inflation. Endogenously time-varying risk premia imply that nominal bond risks—as measured by their stock market beta—are a forward-looking indicator of stagflation risks. Calibrating the model separately for the 1980s and the 2000s, I show that positive nominal bond betas in the 1980s resulted from a “perfect storm” of supply shocks and a reactive monetary policy rule, but not from either supply shocks or monetary policy in isolation.

Cite this work

No public copy is stored for this record, so only the metadata is cited.

Stored only when both papers are in the corpus — 15 citations exist upstream.

Papers that cite the same references — the relational fallback while embeddings are still backfilling.