Is Disinflation Good for the Stock Market? / Peter Blair Henry.

Format:

Book

Author/Creator:

Henry, Peter Blair.

Contributor:

National Bureau of Economic Research.

Series:

Working Paper Series (National Bureau of Economic Research) no. w8289.

NBER working paper series no. w8289

Language:

English

Physical Description:

1 online resource: illustrations (black and white);

Place of Publication:

Cambridge, Mass. National Bureau of Economic Research 2001.

Summary:

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.

Notes:

Print version record

May 2001.