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Inflation, inflation risks and asset returns

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  • Jo Corkish
  • David Miles

Abstract

If low and stable inflation is maintained then the economic environment in the United Kingdom will be very different from any sustained period in the post-war era. This may have significant implications for financial markets: asset prices, the demand and supply for various types of financial contract, and the structure of financial intermediation are likely to be affected by a low inflationary environment. This paper examines the empirical evidence on the links between asset returns, inflation and inflation variability. The real returns on a range of financial and physical assets and are calculated a model of inflation expectations and inflation variability developed. The impact of anticipated inflation, inflation shocks and the variability of inflation on asset values are then estimated.

Suggested Citation

  • Jo Corkish & David Miles, 1994. "Inflation, inflation risks and asset returns," Bank of England working papers 27, Bank of England.
  • Handle: RePEc:boe:boeewp:27
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    References listed on IDEAS

    as
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    Cited by:

    1. Svensson, Lars E. O., 1997. "Inflation forecast targeting: Implementing and monitoring inflation targets," European Economic Review, Elsevier, vol. 41(6), pages 1111-1146, June.
    2. Mark S Astley & Andrew G Haldane, 1995. "Money as an Indicator," Bank of England working papers 35, Bank of England.
    3. Marco Bianchi & Gylfi Zoega, 1998. "Unemployment persistence: does the size of the shock matter?," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 13(3), pages 283-304.
    4. Anthony Yates & Bryan Chapple, 1996. "What Determines the Short-run Output-Inflation Trade-off?," Bank of England working papers 53, Bank of England.
    5. Roger Beaton & Paul Fisher, 1995. "The Construction of RPIY," Bank of England working papers 28, Bank of England.
    6. Joanna Paisley & Chris Salmon, 1995. "How Cyclical is the PSBR?," Bank of England working papers 34, Bank of England.
    7. Peter Sellin, 2001. "Monetary Policy and the Stock Market: Theory and Empirical Evidence," Journal of Economic Surveys, Wiley Blackwell, vol. 15(4), pages 491-541, September.
    8. David Barr & Bahram Pesaran, 1995. "An assessment of the relative importance of real interest rates, inflation and term premia in determining the prices of real and nominal UK bonds," Bank of England working papers 32, Bank of England.
    9. Sellin, Peter, 1998. "Monetary Policy and the Stock Market: Theory and Empirical Evidence," Working Paper Series 72, Sveriges Riksbank (Central Bank of Sweden).
    10. Quah, Danny & Vahey, Shaun P, 1995. "Measuring Core Inflation?," Economic Journal, Royal Economic Society, vol. 105(432), pages 1130-1144, September.
    11. Andy Haldane & Bennett McCallum & Chris Salmon, 1996. "Base Money Rules in the UK," Bank of England working papers 45, Bank of England.
    12. Nicola Anderson & Francis Breedon, 1996. "UK Asset Price Volatility Over the Last 50 Years," Bank of England working papers 51, Bank of England.
    13. Clive Briault & Andrew Haldane & Mervyn A. King, 1997. "Independence and Accountability," Palgrave Macmillan Books, in: Iwao Kuroda (ed.), Towards More Effective Monetary Policy, chapter 10, pages 299-340, Palgrave Macmillan.
    14. Marco Bianchi, 1996. "A Comparison of Methods for Seasonal Adjustment of the Monetary Aggregates," Bank of England working papers 44, Bank of England.
    15. Charles Nolan & Eric Schaling, 1996. "Monetary Policy Uncertainty and Central Bank Accountability," Bank of England working papers 54, Bank of England.
    16. Marco Bianchi, 1995. "Granger causality tests in the presence of structural changes," Bank of England working papers 33, Bank of England.
    17. Marco Bianchi, 1995. "Testing for convergence: evidence from non-parametric multimodality tests," Bank of England working papers 36, Bank of England.
    18. Spencer Dale & Marco Rossi, 1996. "A Market for Intra-day Funds: Does it Have Implications for Monetary Policy?," Bank of England working papers 46, Bank of England.
    19. Francis Breedon & Ian Twinn, 1995. "Valuation of underwriting agreements for UK rights issues: evidence from the traded option market," Bank of England working papers 39, Bank of England.
    20. Francis Breedon, 1996. "Why do the LIFFE and DTB bund futures contracts trade at different prices?," Bank of England working papers 57, Bank of England.
    21. Marco Rossi, 1996. "The information content of the short end of the term structure of interest rates," Bank of England working papers 55, Bank of England.
    22. Kenny, Geoff, 1998. "The Housing Market and the Macroeconomy: Evidence From Ireland," Research Technical Papers 1/RT/98, Central Bank of Ireland.
    23. Matthew B Canzoneri & Charles Nolan & Anthony Yates, 1996. "Feasible Mechanisms for Achieving Monetary Stability: a Comparison of Inflation Targeting and the ERM," Bank of England working papers 52, Bank of England.
    24. James Proudman, 1995. "The Microstructure of the UK gilt market," Bank of England working papers 38, Bank of England.

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