| This thesis studies how inflation as a macroeconomic indicator affects asset prices. In particular, my interest is to understand how changes in inflation and consumption growth affect the prices of bonds. Additionally, I want to understand the role played in the pricing process by regime switching affecting inflation and consumption growth. To this end, I study an economy with a representative agent with Epstein-Zin preferences. Thus, the agent is concerned about the intertemporal distribution of risk, which is affected by the persistence of both the variables and the regimes. Yet, measuring this risk entails econometric challenges. In the estimation of the model I find coefficients of risk aversion from 40 to 90, and subjective discount factors around 0.99, depending on the exact specification of the model. The implied yields can capture the positive slope of the nominal yield curve, have a consistent Principal Components decomposition of the yields, and account for the predictability in yields as in Cochrane and Piazzesi (2002).;Keywords: Consumption-based Asset Pricing; Regime Switching; Recursive Preferences; Yield Curve; Term Structure of Interest Rates.;JEL Classification: G12, E42, E43, E44, and E31. |
