Causal Relations among Stock Returns, Interest Rates, Real Activity, and Inflation

Bong-Soo Lee

Journal of Finance, 1992, vol. 47, issue 4, 1591-603

Abstract: Using a multivariate vector-autoregression approach, this paper investigates causal relations and dynamic interactions among asset returns, real activity, and inflation in the postwar United States. Major findings are (1) stock returns appear Granger-causally prior and help explain real activity; (2) with interest rates in the vector autoregression, stock returns explain little variation in inflation, although interest rates explain a substantial fraction of the variation in inflation; and (3) inflation explains little variation in real activity. Copyright 1992 by American Finance Association.

Date: 1992
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