IDEAS home Printed from https://ideas.repec.org/
MyIDEAS: Login to save this paper or follow this series

Is Disinflation Good for the Stock Market?

  • Henry, Peter B.

    (Stanford U)

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.

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.

File URL: http://gsbapps.stanford.edu/researchpapers/library/rp1681.pdf
Download Restriction: no

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

as
in new window

Length:
Date of creation: Feb 2001
Date of revision:
Handle: RePEc:ecl:stabus:1681
Contact details of provider: Postal: Stanford University, Stanford, CA 94305-5015
Phone: (650) 723-2146
Fax: (650)725-6750
Web page: http://gsbapps.stanford.edu/researchpapers/
Email:


More information through EDIRC

References listed on IDEAS
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.:

as in new window
  1. Fama, Eugene F, 1981. "Stock Returns, Real Activity, Inflation, and Money," American Economic Review, American Economic Association, vol. 71(4), pages 545-65, September.
  2. Summers, Lawrence H, 1985. " On Economics and Finance," Journal of Finance, American Finance Association, vol. 40(3), pages 633-35, July.
  3. Laurence Ball, 1994. "What Determines the Sacrifice Ratio?," NBER Chapters, in: Monetary Policy, pages 155-193 National Bureau of Economic Research, Inc.
  4. Stanley Fischer & Ratna Sahay & Carlos A. Végh Gramont, 2002. "Modern Hyper- and High Inflations," IMF Working Papers 02/197, International Monetary Fund.
  5. Tobin, James, 1972. "Inflation and Unemployment," American Economic Review, American Economic Association, vol. 62(1), pages 1-18, March.
  6. Peter Blair Henry, 2000. "Stock Market Liberalization, Economic Reform, and Emerging Market Equity Prices," Journal of Finance, American Finance Association, vol. 55(2), pages 529-564, 04.
  7. Lucas, Robert E, Jr, 1973. "Some International Evidence on Output-Inflation Tradeoffs," American Economic Review, American Economic Association, vol. 63(3), pages 326-34, June.
  8. Robert J. Gordon, 1982. "Why Stopping Inflation May Be Costly: Evidence from Fourteen Historical Episodes," NBER Chapters, in: Inflation: Causes and Effects, pages 11-40 National Bureau of Economic Research, Inc.
  9. Bruno, Michael & Easterly, William, 1998. "Inflation crises and long-run growth," Journal of Monetary Economics, Elsevier, vol. 41(1), pages 3-26, February.
  10. Barry P. Bosworth & Susan M. Collins, 1999. "Capital Flows to Developing Economies: Implications for Saving and Investment," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 30(1), pages 143-180.
  11. Dominguez, Kathryn M & Fair, Ray C & Shapiro, Matthew D, 1988. "Forecasting the Depression: Harvard versus Yale," American Economic Review, American Economic Association, vol. 78(4), pages 595-612, September.
  12. Okun, Arthur M, 1978. "Efficient Disinflationary Policies," American Economic Review, American Economic Association, vol. 68(2), pages 348-52, May.
  13. Collins, Susan M., 1996. "On becoming more flexible: Exchange rate regimes in Latin America and the Caribbean," Journal of Development Economics, Elsevier, vol. 51(1), pages 117-138, October.
  14. Feldstein, Martin, 1980. "Inflation and the Stock Market," American Economic Review, American Economic Association, vol. 70(5), pages 839-47, December.
  15. Fischer, Stanley, 1993. "The role of macroeconomic factors in growth," Journal of Monetary Economics, Elsevier, vol. 32(3), pages 485-512, December.
  16. Matthew D. Shapiro, 1988. "The Stabilization of the U.S. Economy Evidence From the Stock Market," NBER Working Papers 2645, National Bureau of Economic Research, Inc.
  17. Rudiger Dornbusch, 1998. "After Asia: new directions for the international financial system," Conference Series ; [Proceedings], Federal Reserve Bank of Boston, vol. 42(Jun), pages 177-186.
  18. Bruno, Michael & Easterly, William, 1996. "Inflation's Children: Tales of Crises That Beget Reforms," American Economic Review, American Economic Association, vol. 86(2), pages 213-17, May.
  19. Blanchard, Olivier J, 1981. "Output, the Stock Market, and Interest Rates," American Economic Review, American Economic Association, vol. 71(1), pages 132-43, March.
  20. Tesar, Linda L & Werner, Ingrid M, 1995. "U.S. Equity Investment in Emerging Stock Markets," World Bank Economic Review, World Bank Group, vol. 9(1), pages 109-29, January.
  21. Schwert, G William, 1981. "The Adjustment of Stock Prices to Information about Inflation," Journal of Finance, American Finance Association, vol. 36(1), pages 15-29, March.
  22. Thomas J. Sargent, 1981. "The ends of four big inflations," Working Papers 158, Federal Reserve Bank of Minneapolis.
  23. Stulz, Rene M, 1986. " Asset Pricing and Expected Inflation," Journal of Finance, American Finance Association, vol. 41(1), pages 209-23, March.
  24. Henry, Peter Blair, 2000. "Do stock market liberalizations cause investment booms?," Journal of Financial Economics, Elsevier, vol. 58(1-2), pages 301-334.
  25. Fama, Eugene F. & Schwert, G. William, 1977. "Asset returns and inflation," Journal of Financial Economics, Elsevier, vol. 5(2), pages 115-146, November.
  26. Edmund S. Phelps, 1968. "Money-Wage Dynamics and Labor-Market Equilibrium," Journal of Political Economy, University of Chicago Press, vol. 76, pages 678.
  27. Collins, Susan M, 1990. "Lessons from Korean Economic Growth," American Economic Review, American Economic Association, vol. 80(2), pages 104-07, May.
  28. Dornbusch, Rudiger & Fischer, Stanley, 1991. "Moderate inflation," Policy Research Working Paper Series 807, The World Bank.
  29. 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.
  30. Lucas, Robert E, Jr, 1978. "Asset Prices in an Exchange Economy," Econometrica, Econometric Society, vol. 46(6), pages 1429-45, November.
Full references (including those not matched with items on IDEAS)

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

When requesting a correction, please mention this item's handle: RePEc:ecl:stabus:1681. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: ()

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 references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link 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 profile, as there may be some citations waiting for confirmation.

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

This information is provided to you by IDEAS at the Research Division of the Federal Reserve Bank of St. Louis using RePEc data.