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Is Disinflation Good for the Stock Market?

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Author Info
Henry, Peter B. (Stanford U)

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Abstract

When countries attempt to stabilize annual inflation rates that are greater than 40 percent, the domestic stock market appreciates by 24 percent on average. The present value of the long-run benefits to shareholders of reducing high inflation outweighs the present value of the short-run costs. In contrast, the average market response is economically weak and statistically insignificant, if the pre-stabilization inflation rate is less than 40 percent. Stock market responses also help predict the change in inflation and output in the year following stabilization efforts. This additional result indicates that the stock market evidence for the 81 episodes studied is not spurious.

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Paper provided by Stanford University, Graduate School of Business in its series Research Papers with number 1681.

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Date of creation: Feb 2001
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Handle: RePEc:ecl:stabus:1681

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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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(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. Henry, Peter B., 2003. "Capital Account Liberalization, The Cost of Capital, and Economic Growth," Research Papers 1778, Stanford University, Graduate School of Business. [Downloadable!]
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  3. 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)
  4. Peter Blair Henry & Diego Sasson, 2009. "Capital Market Integration and Wages," NBER Working Papers 15204, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  5. Henry, Peter B. & Sasson, Diego, 2008. "Capital Account Liberalization, Real Wages, and Productivity," Research Papers 1988, Stanford University, Graduate School of Business. [Downloadable!]
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  6. Serkan Arslanalp & Peter Blair Henry, 2002. "Debt Relief: What Do the Markets Think?," NBER Working Papers 9369, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  7. Henry, Peter B., 2007. "Capital Account Liberalization: Theory, Evidence, and Speculation," Research Papers 1974, Stanford University, Graduate School of Business. [Downloadable!]
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  8. Chari, Anusha & Henry, Peter B., 2006. "Firm-Specific Information and the Efficiency of Investment," Research Papers 1930, Stanford University, Graduate School of Business. [Downloadable!]
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  9. Henry, Peter B. & Arslanalp, Serkan, 2003. "Is Debt Relief Efficient?," Research Papers 1837, Stanford University, Graduate School of Business. [Downloadable!]
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