Stock prices, inflation and inflation uncertainty in the U.S.: Testing the long-run relationship considering Dow Jones sector indexes

Claudiu Albulescu (), Christian Aubin and Daniel Goyeau
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Christian Aubin: CRIEF [Poitiers] - Centre de recherche sur l'intégration économique et financière - UP - Université de Poitiers = University of Poitiers
Daniel Goyeau: CRIEF [Poitiers] - Centre de recherche sur l'intégration économique et financière - UP - Université de Poitiers = University of Poitiers

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Abstract: We test for the long-run relationship between stock prices, inflation and its uncertainty for different U.S. sector stock indexes, over the period 2002M7 to 2015M10. For this purpose we use a cointegration analysis with one structural break to capture the crisis effect, and we assess the inflation uncertainty based on a time-varying unobserved component model. In line with recent empirical studies we discover that in the long-run, the inflation and its uncertainty negatively impact the stock prices, opposed to the well-known Fisher effect. In addition we show that for several sector stock indexes the negative effect of inflation and its uncertainty vanishes after the crisis setup. However, in the short-run the results provide evidence in the favor of a negative impact of uncertainty, while the inflation has no significant influence on stock prices, except for the consumption indexes. The consideration of business cycle effects confirms our findings, which proves that the results are robust, both for the long-and the short-run relationships.

Keywords: stock prices; inflation uncertainty; cointegration with structural breaks; unobserved component model; US JEL codes: C22; E31; G15 (search for similar items in EconPapers)
Date: 2016-03-03
New Economics Papers: this item is included in nep-mac
Note: View the original document on HAL open archive server: https://hal.science/hal-01282481
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Citations: View citations in EconPapers (1)

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Related works:
Journal Article: Stock prices, inflation and inflation uncertainty in the U.S.: testing the long-run relationship considering Dow Jones sector indexes (2017)
Working Paper: Stock prices, inflation and inflation uncertainty in the U.S.: testing the long-run relationship considering Dow Jones sector indexes (2016)
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