Hostname: page-component-586b7cd67f-t7czq Total loading time: 0 Render date: 2024-11-22T16:54:21.975Z Has data issue: false hasContentIssue false

Monetary Regimes and the Relation between Stock Returns and Inflationary Expectations

Published online by Cambridge University Press:  06 April 2009

Abstract

This paper analyzes the impact of changes in monetary policy regimes on the relation between stock returns and changes in expected inflation. Post-war evidence from four countries reveals a direct link between these relations and the central banks' operating targets (i.e., money supply or interest rates). Specifically, the post-war negative relations between stock returns and changes in expected inflation are significantly stronger during interest rate regimes.

Type
Research Article
Copyright
Copyright © School of Business Administration, University of Washington 1990

Access options

Get access to the full version of this content by using one of the access options below. (Log in options will check for institutional or personal access. Content may require purchase if you do not have access.)

References

Barro, R. J.Unanticipated Money, Output, and the Price Level in the United States.” Journal of Political Economy, 86 (08 1978), 549580CrossRefGoogle Scholar
Barro, R. J.On the Determination of Public Debt.” Journal of Political Economy, 87 (10 1979), 940971.CrossRefGoogle Scholar
Bodie, Z.Common Stocks as a Hedge against Inflation.” Journal of Finance, 31 (05 1976), 459470.CrossRefGoogle Scholar
Box, G. E. P., and Jenkins, G. M.. Time Series Analysis: Forecasts and Control, 2nd ed.San Francisco: Holden Day (1976).Google Scholar
Dornbusch, R., and Fischer, S.. Macroeconomics. New York: McGraw-Hill (1981).Google Scholar
Fama, E. F.Stock Returns, Real Activity, Inflation and Money.” American Economic Review, 71 (09 1981), 545565.Google Scholar
Fama, E. F., and Gibbons, M. R.. “A Comparison of Inflation Forecasts.” Journal of Monetary Economics, 13 (05 1984), 327348.CrossRefGoogle Scholar
Fama, E. F., and Schwert, G. W.. “Assets Returns and Inflation.” Journal of Financial Economics, 5 (11 1977), 115146.CrossRefGoogle Scholar
Geske, R., and Roll, R.. “The Fiscal and Monetary Linkage between Stock Returns and Inflation.” Journal of Finance, 38 (03 1983), 133.CrossRefGoogle Scholar
Gultekin, N. B.Stock Market Returns and Inflation: Evidence from Other Countries.” Journal of Finance, 38 (03 1983), 4965.CrossRefGoogle Scholar
Hardouvelis, G. A.The Predictive Power of the Term Structure during Recent Monetary Regimes.” Journal of Finance, 43 (06 1988), 339356.CrossRefGoogle Scholar
Huizinga, J., and Mishkin, F. S.. “Monetary Policy Regime Shifts and the Unusual Behavior of Real Interest Rates.” Working Paper, National Bureau of Economic Research (03 1985).CrossRefGoogle Scholar
Jaffe, J., and Mandelker, G.. “The ‘Fisher Effect’ for Risky Assets: An Empirical Investigation.” Journal of Finance, 31 (03 1976), 447458.CrossRefGoogle Scholar
Kaul, G. “Stock Returns and Inflation: The Role of the Monetary Sector.” Ph.D. Diss., Univ. of Chicago (1985).Google Scholar
Kaul, G.Stock Returns and Inflation: The Role of the Monetary Sector.” Journal of Financial Economics, 18 (07 1987), 253276.CrossRefGoogle Scholar
Nelson, C. R.Inflation and Rates of Return on Common Stocks.” Journal of Finance, 31 (05 1976), 471483.CrossRefGoogle Scholar
Nelson, C. R.Recursive Structure in U.S. Income, Prices, and Output.” Journal of Political Economy, 87 (12 1979), 13071327.CrossRefGoogle Scholar
Sargent, T. J., and Wallace, N.. “Some Unpleasant Monetarist Arithmetic.” Federal Reserve Bank of Minneapolis Quarterly Review, 5 (Fall 1981), 117.Google Scholar
Shiller, R. J. “Can the Fed Control Real Interest Rates?” In Rational Expectations and Economic Policy, Fischer, Stanley, ed. Chicago: Univ. of Chicago Press (1980), 117167.Google Scholar
Solnik, B.The Relation between Stock Prices and Inflationary Expectations.” Journal of Finance, 38 (03 1983), 3548.CrossRefGoogle Scholar
Zellner, A.An Efficient Method of Estimating Seemingly Unrelated Regressions and Tests of Aggregation Bias.” Journal of American Statistical Association, 57 (06 1962), 348368.CrossRefGoogle Scholar