This paper analyses the empirical interdependence of asset returns, real activity and inflation from a multicountry and international point of view. We find that nominal stock returns are significantly related to inflation only in the United States, that the US term structure of interest rates predicts both domestic and foreign inflation rates while foreign term structures do not have this predictive power and that innovations in inflation and exchange rates induce insignificant responses of real and financial variables. An interpretation of the dynamics and some policy implications of the results are provided.
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Paper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number
1614.
Find related papers by JEL classification: C15 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods: General - - - Statistical Simulation Methods E43 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Determination of Interest Rates; Term Structure of Interest Rates
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