Review of Financial Studies Vol. 12 No. 5 1999
Stock Returns and Inflation with Supply and Demand Disturbances
Abstract
[We account for the relation between stock returns and inflation with two independent disturbances: supply shocks and demand shocks. Supply shocks reflect real output shocks and cause a negative relation between stock returns and inflation, while demand shocks are mainly due to monetary shocks and generate a positive relation between stock returns and inflation. We show, both theoretically and empirically, that the stock return-inflation relation varies over time and across countries, depending on the relative importance of the two types of shocks. Our empirical evidence is based on pre- and postwar periods in the United States, as well as the postwar period in the United Kingdom, Japan, and Germany.]
- Volume
- 12
- Issue
- 5
- Pages
- 1203-1218
- Sources
- bibtex:phds-export.bib