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- Title
Real Activity, Inflation, Stock Returns, and Monetary Policy.
- Authors
Kwangwoo Park; Ratti, Ronald A.
- Abstract
We find that contractionary monetary policy shocks generate statistically significant movements in inflation and expected real stock returns, and that these movements go in opposite directions. Since positive shocks to output precipitate monetary tightening, we argue that the countercyclical monetary policy process is important in explaining the negative correlation between inflation and stock returns. Examining the 1979-1982 period, we find that monetary policy tightens significantly in response to positive shocks to inflation, and that the impact of monetary policy shocks on stock returns is negative and volatile. Therefore, we see evidence that an "anticipated policy" hypothesis is at work.
- Subjects
PRICE inflation; STOCKS (Finance); MONETARY policy
- Publication
Financial Review, 2000, Vol 35, Issue 2, p59
- ISSN
0732-8516
- Publication type
Article
- DOI
10.1111/j.1540-6288.2000.tb01414.x