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| Author: | Bansal, R. Coleman II, W.J. |
| Title: | A monetary explanation of the equity premium, term premium, and risk-free rate puzzles |
| Journal: | Journal of Political Economy
1996 : DEC, VOL. 104:6, p. 1135-1171 |
| Index terms: | POLITICAL ECONOMY ECONOMICS MONEY |
| Language: | eng |
| Abstract: | This paper develops and estimates a monetary model that offers an explanation of some puzzling features of observed returns on equities and default-free bonds. The key feature of the model is that some assets other than money play a special role in facilitating transactions, which affects the rate of return that they offer. The model is capable of producing a low risk-free rate, a high equity premium, and an average positive relationship between maturity and term premium for default-free bonds. |
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