Disinflation and the Stock Market: Third World Lessons for First World Monetary Policy / Anusha Chari, Peter Blair Henry.

Format:

Book

Author/Creator:

Chari, Anusha.

Contributor:

National Bureau of Economic Research.

Henry, Peter Blair.

Series:

Working Paper Series (National Bureau of Economic Research) no. w31129.

NBER working paper series no. w31129

Language:

English

Physical Description:

1 online resource: illustrations (black and white);

Place of Publication:

Cambridge, Mass. National Bureau of Economic Research 2023.

Summary:

When policymakers implement a disinflation program directed at high inflation, the real dollar value of their country's stock market index experiences a cumulative abnormal 12-month return of 48 percent in anticipation of the event. In contrast, the average cumulative abnormal 12-month return associated with disinflations directed at moderate inflation is negative 18 percent. The 66-percentage point difference between cumulative abnormal returns, along with descriptive evidence and case studies, suggests that unlike the swift eradication of past high inflations documented by Sargent (1982), the US will not experience a quick, low-cost transition from moderate inflation to the Fed's two-percent target.

Notes:

Print version record

April 2023.