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Asset price reactions to RPI announcements

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  • M A S Joyce
  • V Read

Abstract

UK asset price reactions to RPI announcements are examined from the early 1980s up to April 1997. Announcements are decomposed into their expected and unexpected components using survey data on inflation expectations. Asset prices do not appear to respond to the expected component of announcements, consistent with the predictions of the efficient markets hypothesis. The main sensitivity to inflation news appears in government bond prices, and the results are consistent with the 1992-97 inflation targeting regime being not fully credible, though its credibility increased over time.

Suggested Citation

  • M A S Joyce & V Read, 1999. "Asset price reactions to RPI announcements," Bank of England working papers 94, Bank of England.
  • Handle: RePEc:boe:boeewp:94
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    File URL: http://www.bankofengland.co.uk/archive/Documents/historicpubs/workingpapers/1999/wp94.pdf
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    References listed on IDEAS

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    1. Cornell, Bradford, 1983. "The Money Supply Announcements Puzzle: Review and Interpretation," American Economic Review, American Economic Association, vol. 73(4), pages 644-657, September.
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    Cited by:

    1. D Büttner & B. Hayo, 2012. "EMU-related news and financial markets in the Czech Republic, Hungary and Poland," Applied Economics, Taylor & Francis Journals, vol. 44(31), pages 4037-4053, November.
    2. Andreas Reschreiter, 2010. "Indexed bonds and revisions of inflation expectations," Annals of Finance, Springer, vol. 6(4), pages 537-554, October.
    3. Balázs Égert, 2010. "The Impact of Monetary and Commodity Fundamentals, Macro News and Central Bank Communication on the Exchange Rate: Evidence from South Africa," Open Economies Review, Springer, vol. 21(5), pages 655-677, November.
    4. Francisco Jareno, 2008. "Spanish stock market sensitivity to real interest and inflation rates: an extension of the Stone two-factor model with factors of the Fama and French three-factor model," Applied Economics, Taylor & Francis Journals, vol. 40(24), pages 3159-3171.
    5. Chen, En-Te (John) & Clements, Adam, 2007. "S&P 500 implied volatility and monetary policy announcements," Finance Research Letters, Elsevier, vol. 4(4), pages 227-232, December.
    6. Robert S. Chirinko & Christopher Curran, 2013. "Greenspan Shrugs: Central Bank Communication, Formal Pronouncements and Bond Market Volatility," CESifo Working Paper Series 4236, CESifo Group Munich.
    7. Díaz, Antonio & Jareño, Francisco, 2009. "Explanatory factors of the inflation news impact on stock returns by sector: The Spanish case," Research in International Business and Finance, Elsevier, vol. 23(3), pages 349-368, September.
    8. Ana Lasaosa, 2007. "Learning the Rules of the New Game? Comparing the Reactions in Financial Markets to Announcements before and after the Bank of England's Operational Independence," Ekonomia, Cyprus Economic Society and University of Cyprus, vol. 10(1), pages 18-41, Summer.
    9. Li, Lifang & Narayan, Paresh Kumar & Zheng, Xinwei, 2010. "An analysis of inflation and stock returns for the UK," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 20(5), pages 519-532, December.
    10. Andrew Clare & Roger Courtenay, 2001. "Assessing the impact of macroeconomic news announcements on securities prices under different monetary policy regimes," Bank of England working papers 125, Bank of England.
    11. Antonio Díaz & Francisco Jareño, 2013. "Inflation news and stock returns: market direction and flow-through ability," Empirical Economics, Springer, vol. 44(2), pages 775-798, April.
    12. repec:eaa:aeinde:v:17:y:2017:i:2_5 is not listed on IDEAS
    13. Jones, Brad & Lin, Chien-Ting & Masih, A. Mansur M., 2005. "Macroeconomic announcements, volatility, and interrelationships: An examination of the UK interest rate and equity markets," International Review of Financial Analysis, Elsevier, vol. 14(3), pages 356-375.

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