 Measuring transitory inflation: Implications for monetary policy and stock market volatilityYosef Bonaparte, Frank J. Fabozzi and Matt Peron Journal of International Money and Finance, 2025, vol. 153, issue C Abstract: We present a methodology for developing a transitory inflation (TI) measure that captures persistent deviations from mean inflation, distinguishing it from underlying inflation. First, we analyze the decay rate of TI as it reverts to stationary inflation, finding that convergence typically ranges between two to four years. We then examine the impact of TI on monetary policy, demonstrating that a surge in TI increases monetary policy uncertainty and is followed by interest rate hikes by the Federal Reserve. Furthermore, we investigate how TI influences key stock market outcomes and find its impact varies across sectors and by market capitalization; overall, higher TI is associated with lower asset prices, especially for small-cap stocks, and higher stock market volatility. We also identify rising oil prices as a significant driver of TI. Keywords: Transitory Inflation; Stock Market Performance; Monetary Policy Uncertainty; Economic policy uncertainty; Oil prices (search for similar items in EconPapers) Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:eee:jimfin:v:153:y:2025:i:c:s0261560625000191 DOI: 10.1016/j.jimonfin.2025.103284 Access Statistics for this article Journal of International Money and Finance is currently edited by J. R. Lothian More articles in Journal of International Money and Finance from Elsevier |
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