The Stock Market in an Inflation-Targeting Economy

You are kindly invited to the Seminar in Financial Research

co-organised by the National Bank of Belgium and the Belgian universities (KU Leuven, UA, UCL, UGent, ULB, ULg, UMons, UNamur, USaint-Louis, Vlerick and VUB)

by
Bernard Dumas (INSEAD)

on
The Stock Market in an Inflation-Targeting Economy (co-authored by Marcel Savioz (Swiss National Bank))

Abstract
We construct recursive solutions for, and study quasi-explicitly the properties of the dynamic equilibrium of an economy with three types of agents: (i) household/investors who supply labor with a finite elasticity, consume a large variety of goods that are not perfect substitutes and trade government bonds; (ii) firms that produce those varieties of goods, setting prices in a Calvo manner; (iii) a government that collects an exogenous fiscal surplus and acts mechanically, buying and selling bonds in accordance with a Taylor policy rule based on expected inflation. In this equilibrium, we price the stock market, defined as the present discounted value of firms’ profits and simulate the joint behavior of stock returns and inflation. We use the simulated data to gauge the adequacy of the model in comparison with empirical stylized facts.

The seminar will be held in the auditorium of the National Bank of Belgium (Room A), entrance: rue Montagne aux Herbes potagères 61, Brussels.

Please reply by email to nbbfinancial.seminar@nbb.be if you wish to participate to this seminar or if you want to have an appointment with the speaker.

Due to security measures it is necessary that you register before Friday evening April 26th. Without registration, you will not be allowed in the seminar room.

In case you want to access the NBB Parking (rue Montagne aux Herbes potagères 41), please also provide us with your name and the license plate of your car.

Kind regards, P. Ilbas (NBB), H. Degryse (KU Leuven), M. Deloof (UA), L. Iania (UCL), K. Inghelbrecht (UGent), K. Oosterlinck (ULB), G. Hubner (ULg), L. Pozniak (UMons), J.Y. Gnabo (UNamur), A. Claes (USaint-Louis), D. Veredas (Vlerick) and S. Vanduffel (VUB)