IDEAS home Printed from https://ideas.repec.org/a/arp/ijefrr/2022p123-128.html

Japan and the United Kingdom: The Inflation Irrelevance Proposition

Author

Listed:
  • Samih Antoine Azar

    (Full Professor Faculty of Business Administration & Economics Haigazian University Mexique Street, Kantari, Beirut, Lebanon)

Abstract

This paper is about the generalized proposition of inflation irrelevance. The weak-form version of inflation irrelevance holds that stock prices are independent of inflation rates. The semi-strong form version is that stock prices are independent of both domestic and foreign inflation rates. The strong, or generalized, version is that stock returns are independent of all three rates, domestic and foreign inflation rates, and changes in foreign exchange rates. Overall, the three forms fail to be rejected separately and jointly under conventional marginal significance levels. The conclusion from this paper is that inflation irrelevance, or nominal neutrality, is a common characteristic in the two countries studied, Japan and the United Kingdom. Therefore, the statistical evidence is mounting manifestly, and is pervasive and applies to diverse economies, among which Japan and UK. This regularity amounts to an international stylized empirical fact that cannot be ignored.

Suggested Citation

  • Samih Antoine Azar, 2022. "Japan and the United Kingdom: The Inflation Irrelevance Proposition," International Journal of Economics and Financial Research, Academic Research Publishing Group, vol. 8(4), pages 123-128, 12-2022.
    • Handle: RePEc:arp:ijefrr:2022:p:123-128
    DOI: 10.32861/ijefr.84.123.128
    as

    Download full text from publisher

    File URL: https://www.arpgweb.com/pdf-files/ijefr8(4)123-128.pdf
    Download Restriction: no
    File URL: https://www.arpgweb.com/journal/5/archive/12-2022/4/8
    Download Restriction: no
    File URL: https://libkey.io/10.32861/ijefr.84.123.128?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    References listed on IDEAS

    as
    1. Engle, Robert F & Ng, Victor K, 1993. "Measuring and Testing the Impact of News on Volatility," Journal of Finance, American Finance Association, vol. 48(5), pages 1749-1778, December.
    2. Mehra, Rajnish & Prescott, Edward C., 2003. "The equity premium in retrospect," Handbook of the Economics of Finance, in: G.M. Constantinides & M. Harris & R. M. Stulz (ed.), Handbook of the Economics of Finance, edition 1, volume 1, chapter 14, pages 889-938, Elsevier.
    3. Samih Antoine Azar, 2022. "Canada: The Inflation Irrelevance Proposition," International Journal of Economics and Financial Research, Academic Research Publishing Group, vol. 8(4), pages 104-111, 12-2022.
    4. Samih Antoine Azar, 2010. "Inflation and stock returns," International Journal of Accounting and Finance, Inderscience Enterprises Ltd, vol. 2(3/4), pages 254-274.
    5. Mehra, Rajnish & Prescott, Edward C., 1985. "The equity premium: A puzzle," Journal of Monetary Economics, Elsevier, vol. 15(2), pages 145-161, March.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Luca Gerotto & Paolo Pellizzari, 2021. "A replication of Pindyck’s willingness to pay: on the efforts required to obtain results," SN Business & Economics, Springer, vol. 1(5), pages 1-25, May.
    2. Yu Chen & Thomas Cosimano & Alex Himonas, 2008. "Solving an asset pricing model with hybrid internal and external habits, and autocorrelated Gaussian shocks," Annals of Finance, Springer, vol. 4(3), pages 305-344, July.
    3. Zeisberger, Stefan & Langer, Thomas & Trede, Mark, 2007. "A note on myopic loss aversion and the equity premium puzzle," Finance Research Letters, Elsevier, vol. 4(2), pages 127-136, June.
    4. Huang, Lin & Wu, Jia & Zhang, Rui, 2014. "Exchange risk and asset returns: A theoretical and empirical study of an open economy asset pricing model," Emerging Markets Review, Elsevier, vol. 21(C), pages 96-116.
    5. Zimper, Alexander, 2012. "Asset pricing in a Lucas fruit-tree economy with the best and worst in mind," Journal of Economic Dynamics and Control, Elsevier, vol. 36(4), pages 610-628.
    6. Lundtofte, Frederik & Wilhelmsson, Anders, 2013. "Risk premia: Exact solutions vs. log-linear approximations," Journal of Banking & Finance, Elsevier, vol. 37(11), pages 4256-4264.
    7. David N. DeJong & Emilio Espino, 2007. "The Cyclical Behavior of Equity Turnover," Working Paper 294, Department of Economics, University of Pittsburgh, revised Jun 2010.
    8. Enrico G. De Giorgi & Thierry Post, 2011. "Loss Aversion with a State-Dependent Reference Point," Management Science, INFORMS, vol. 57(6), pages 1094-1110, June.
    9. Rajnish Mehra, 2006. "The Equity Premium in India," NBER Working Papers 12434, National Bureau of Economic Research, Inc.
    10. Abootaleb Shirvani & Stoyan V. Stoyanov & Frank J. Fabozzi & Svetlozar T. Rachev, 2019. "Equity Premium Puzzle or Faulty Economic Modelling?," Papers 1909.13019, arXiv.org, revised Jan 2020.
    11. Rieger, Marc Oliver & Wang, Mei, 2012. "Can ambiguity aversion solve the equity premium puzzle? Survey evidence from international data," Finance Research Letters, Elsevier, vol. 9(2), pages 63-72.
    12. Marc Oliver Rieger & Thorsten Hens & Mei Wang, 2013. "International Evidence on the Equity Premium Puzzle and Time Discounting," Multinational Finance Journal, Multinational Finance Journal, vol. 17(3-4), pages 149-163, September.
    13. He, Ying & Dyer, James S. & Butler, John C. & Jia, Jianmin, 2019. "An additive model of decision making under risk and ambiguity," Journal of Mathematical Economics, Elsevier, vol. 85(C), pages 78-92.
    14. Francisco Azeredo, 2014. "The equity premium: a deeper puzzle," Annals of Finance, Springer, vol. 10(3), pages 347-373, August.
    15. Y. Lemp'eri`ere & C. Deremble & T. T. Nguyen & P. Seager & M. Potters & J. P. Bouchaud, 2014. "Risk Premia: Asymmetric Tail Risks and Excess Returns," Papers 1409.7720, arXiv.org, revised Oct 2015.
    16. Yulei Peng & Anastasia Zervou, 2014. "Monetary Policy Rules and the Equity Premium," Working Papers 20141115_001, Texas A&M University, Department of Economics.
    17. Layard, R. & Mayraz, G. & Nickell, S., 2008. "The marginal utility of income," Journal of Public Economics, Elsevier, vol. 92(8-9), pages 1846-1857, August.
    18. Jingyi Liu, 2008. "Can a Lucas model with habit generate realistic conditional volatility in exchange rate returns?," Edinburgh School of Economics Discussion Paper Series 181, Edinburgh School of Economics, University of Edinburgh.
    19. Whelan, Shane, 2007. "Valuing Ireland's Pension System," Quarterly Economic Commentary: Special Articles, Economic and Social Research Institute (ESRI), vol. 2007(2-Summer), pages 55-80.
    20. Wonnho Choi, 2014. "Habit Formation and Risk-free Rate Puzzle," International Journal of Financial Research, International Journal of Financial Research, Sciedu Press, vol. 5(4), pages 155-170, October.

    More about this item

    Keywords

    ;
    ;
    ;
    ;
    ;
    ;
    ;

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:arp:ijefrr:2022:p:123-128. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Managing Editor (email available below). General contact details of provider: http://www.arpgweb.com/?ic=journal&journal=5&info=aims .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.