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Is Disinflation Good for the Stock Market?

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Author Info
Peter Blair Henry (Stanford University)

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Abstract

The stock market appreciates by an average of 24 percent in real dollar terms when countries attempt to stabilize annual inflation rates that are greater than 40 percent. In contrast, the average market response is 0 when the pre-stabilization rate of inflation is less than 40 percent. These results suggest that the potential long-run benefits of stabilization may dominate short-run costs at high levels of inflation, but at low to moderate levels of inflation, benefits may be offset by costs in a present value sense. Stock market responses also help predict the change in inflation and output in the year following all 81 stabilization efforts. Copyright The American Finance Association 2002.

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Article provided by American Finance Association in its journal The Journal of Finance.

Volume (Year): 57 (2002)
Issue (Month): 4 (08)
Pages: 1617-1648
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Handle: RePEc:bla:jfinan:v:57:y:2002:i:4:p:1617-1648

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Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
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  3. Michael Bruno & William Easterly, 1996. "Inflation's Children: Tales of Crises that Beget Reforms," NBER Working Papers 5452, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  4. Thomas J. Sargent, 1982. "The Ends of Four Big Inflations," NBER Chapters, in: Inflation: Causes and Effects, pages 41-98 National Bureau of Economic Research, Inc. [Downloadable!]
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  5. Nancy L. Rose, 1985. "The Incidence of Regulatory Rents in the Motor Carrier Industry," RAND Journal of Economics, The RAND Corporation, vol. 16(3), pages 299-318, Autumn. [Downloadable!] (restricted)
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  7. Stanley Fischer & Ratna Sahay & Carlos A. Vegh, 2002. "Modern Hyper- and High Inflations," NBER Working Papers 8930, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  8. Dornbusch, Rudiger & Fischer, Stanley, 1993. "Moderate Inflation," World Bank Economic Review, Oxford University Press, vol. 7(1), pages 1-44, January.
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Full references

Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Henry, Peter B., 2003. "Commentary on Bekaert, Harvey, and Lundblad's "Equity Market Liberalization in Emerging Equity Markets"," Research Papers 1783, Stanford University, Graduate School of Business. [Downloadable!]
  2. Peter Blair Henry & Diego Sasson, 2009. "Capital Market Integration and Wages," NBER Working Papers 15204, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  3. Arslanalp, Serkan & Henry, Peter B., 2003. "Debt Relief: What Do the Markets Think?," Research Papers 1810, Stanford University, Graduate School of Business. [Downloadable!]
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  4. Henry, Peter B. & Arslanalp, Serkan, 2003. "Is Debt Relief Efficient?," Research Papers 1837, Stanford University, Graduate School of Business. [Downloadable!]
    Other versions:
  5. Chari, Anusha & Henry, Peter B., 2007. "Firm-Specific Information and the Efficiency of Investment," Research Papers 1975, Stanford University, Graduate School of Business. [Downloadable!]
    Other versions:
  6. Henry, Peter B., 2003. "Capital Account Liberalization, The Cost of Capital, and Economic Growth," Research Papers 1778, Stanford University, Graduate School of Business. [Downloadable!]
    Other versions:
  7. Henry, Peter B. & Sasson, Diego, 2008. "Capital Account Liberalization, Real Wages, and Productivity," Research Papers 1988, Stanford University, Graduate School of Business. [Downloadable!]
    Other versions:
  8. Henry, Peter B., 2007. "Capital Account Liberalization: Theory, Evidence, and Speculation," Research Papers 1974, Stanford University, Graduate School of Business. [Downloadable!]
    Other versions:
  9. Gregory Price, 2008. "NEA Presidential Address: Black Economists of the World You Cite!!," The Review of Black Political Economy, Springer, vol. 35(1), pages 1-12, March. [Downloadable!] (restricted)
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