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Are the Dynamic Linkages Between the Macroeconomy and Asset Prices Time-Varying?
Social Science Research Network
We estimate a number of multivariate regime switching VAR models on a long monthly U.S. data set for eight variables that include excess stock and bond returns, the real T-bill yield, predictors used in the finance literature (default spread and the dividend yield), and three macroeconomic variables (inflation, industrial production growth, and a measure of real money growth). Heteroskedasticity may be accounted for by making the covariance matrix a function of the regime. We find evidence ofdoi:10.2139/ssrn.760907 fatcat:qax5o6sjfnbx3k4fsidhca622i