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Financial Market Volatility and the World-wide Fall in Inflation

Author

Listed:
  • David Gruen

    (Reserve Bank of Australia)

Abstract

Inflation in the 1990s in most industrial countries is lower and less variable than at any time in the past quarter of a century. Economic theory predicts that, other things equal, this decline in inflation variability should lead to less volatility in both bond and foreign exchange markets. The paper tests these theoretical predictions and finds some evidence that lower inflation variability leads to less volatility of bond yields, but almost no evidence that it leads to lower volatility of floating exchange rates.

Suggested Citation

  • David Gruen, 1995. "Financial Market Volatility and the World-wide Fall in Inflation," RBA Research Discussion Papers rdp9513, Reserve Bank of Australia.
    • Handle: RePEc:rba:rbardp:rdp9513
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    File URL: https://www.rba.gov.au/publications/rdp/1995/pdf/rdp9513.pdf
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    References listed on IDEAS

    as
    1. Meese, Richard, 1990. "Currency Fluctuations in the Post-Bretton Woods Era," Journal of Economic Perspectives, American Economic Association, vol. 4(1), pages 117-134, Winter.
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    5. Dornbusch, Rudiger, 1976. "Expectations and Exchange Rate Dynamics," Journal of Political Economy, University of Chicago Press, vol. 84(6), pages 1161-1176, December.
    6. Cochrane, John H., 1991. "Volatility tests and efficient markets : A review essay," Journal of Monetary Economics, Elsevier, vol. 27(3), pages 463-485, June.
    7. LeRoy, Stephen F & Porter, Richard D, 1981. "The Present-Value Relation: Tests Based on Implied Variance Bounds," Econometrica, Econometric Society, vol. 49(3), pages 555-574, May.
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    Cited by:

    1. Varga, János Zoltán & Soós, Gábor Dániel, 2025. "A magyar fogyasztói és üzleti bizalom makrogazdasági vonatkozásai [Macroeconomic implications of Hungarian consumer and business confidence]," Közgazdasági Szemle (Economic Review - monthly of the Hungarian Academy of Sciences), Közgazdasági Szemle Alapítvány (Economic Review Foundation), vol. 0(12), pages 1179-1206.
    2. Malcolm Edey & John Romalis, 1996. "Issues in Modelling Monetary Policy," RBA Research Discussion Papers rdp9604, Reserve Bank of Australia.

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