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The Zero-Beta Rate
2022-11-18
Time: 10:00 am-11:30 am, Nov. 18th, 2022
Platform: Zoom
Speaker: Sebastian Di Tella
(Stanford University)
Link: https://us06web.zoom.us/j/81626164288?pwd=Zmp1VG41dXF0by9UZTBRVkxSbjJWZz09
Meeting ID: 816 2616 4288
Passcode: inse
Abstract:
We construct a time-series of the zero-beta rate: the expected return of a portfolio uncorrelated to the SDF. We show there is a large and time-varying spread with the Treasury rate, which we interpret as convenience yield. We show that the zero-beta rate is the correct interest rate to use in the Euler equation, and that this relationship holds strikingly well in the data. We also show under what conditions the convenience yield is endogenous to monetary policy and explore how this affects our view of how monetary policy works.
Speaker:
Professor Sebastian Di Tella is an associate professor of economics at Stanford Graduate School of Business, where he teaches macroeconomics in the MBA program. His research is in macroeconomic theory covering a range of topics, including business cycles, monetary policy, financial crises, and financial regulation. His recent work explores how spikes in risk premiums can explain recessions, and the role of money during persistent slumps. He has also studied the role of the financial system in the propagation and amplification of aggregate shocks, and the implications for financial regulation. His work has been published in the American Economic Review, Econometrica, the Review of Economic Studies and the Journal of Political Economy. Professor Sebastian Di Tella received his Ph.D. in Economics from MIT in 2013.