In this article, I suggest that incomplete markets and transaction costs are crucial for explaining the high equity premium and the low risk-free rate. I first demonstrate the failure of the complete frictionless markets model in explaining these return puzzles and then show how introducing...

This study describes and reconciles two common, seemingly contradictory views about a key monetary policy relationship: that between money and interest rates. Data since 1960 for about 40 countries support the Fisher equation view, that these variables are positively related. But studies taking...

Some analysts have argued that indexed bonds convey important information for the formulation of monetary policy. This article investigates whether a market measure of expected inflation derived from British indexed gilt prices would be useful in predicting future inflation and real economic...