ARBITRAGE PRICING AND THE STOCHASTIC INFLATION TAX IN A MULTISECTOR MONETARY ECONOMY

A dynamic general equilibrium multifactor asset pricing model for a mo netary economy with capital accumulation and multisector production is constructed. Equilibrium Clower constraints on some investment goods and some consumption goods are imposed. An equilibrium APT model is co nstructed where the covariance between the inflation tax, distorted eq uilibrium investment returns, and fundamental forcing processes are im portant in determining equilibrium risk prices. The model is used to a ddress issues concerning the relative importance of real and nominal f actors in asset pricing raised in recent papers by Chen, Roll, and Ros s (1986) and Cochrane (1991, 1992).