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Bernard Dumas, INSEAD Print
Monday, 29 April 2019, 16:30 - 18:00

Joint with NBB, KULeuven, UA, UCL, UGent, ULB, ULg, UMons, UNamur, USaint-Louis, Vlerick, VUB

Bernard Dumas, INSEAD

The Stock Market in an Inflation-Targeting Economy

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.


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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
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Location: NBB auditorium A1
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