Are Changes in Inflation Expectations Capitalized into Stock Prices? A Micro-firm Test for the Nominal Contracting Hypothesis

Yoon Dokko

The Review of Economics and Statistics, 1989, vol. 71, issue 2, 309-17

Abstract: Unlike earlier studies, the author finds empirical support, using microfirm data, for the nominal contracting hypothesis; that is, changes in expected inflation create a wealth redistribution between creditors (bondholders) and debtors (shareholders). The author is able to improve model specification by(1) recognizing explicitly that a firm's asset and capital structure variables are balance-sheet constrained and (2) controlling for individual firm risk differences and capital gains taxation. Copyright 1989 by MIT Press.

Date: 1989
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