Monetary policy, stock returns and inflation

Research output: Contribution to journalArticle

20 Scopus citations

Abstract

The relationship between stock returns and inflation depends on both the monetary policy regime and the relative importance of demand and supply shocks. A simple analytical framework by which to empirically examine the relative importance of these two factors is developed in this paper. Our findings indicate that the positive relationship between stock returns and inflation in the 1930s is mainly due to strongly pro-cyclical monetary policy, while the strong negative relationship of stock returns and inflation during the period of 1952-1974 is largely caused by supply shocks that were relatively more important in that period. Our results are broadly consistent with the general economic literature on monetary policy and stagflation.

Original languageEnglish (US)
Pages (from-to)36-54
Number of pages19
JournalJournal of Economics and Business
Volume58
Issue number1
DOIs
StatePublished - Jan 2006
Externally publishedYes

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Keywords

  • Inflation
  • Stock returns

ASJC Scopus subject areas

  • Business, Management and Accounting(all)

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