Disinflation and the Stock Market: Third World Lessons for First World Monetary Policy

Anusha Chari and Peter Henry

No 31129, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: When policymakers implement a disinflation program directed at high inflation, the real dollar value of their country’s stock market index experiences a cumulative abnormal 12-month return of 48 percent in anticipation of the event. In contrast, the average cumulative abnormal 12-month return associated with disinflations directed at moderate inflation is negative 18 percent. The 66-percentage point difference between cumulative abnormal returns, along with descriptive evidence and case studies, suggests that unlike the swift eradication of past high inflations documented by Sargent (1982), the US will not experience a quick, low-cost transition from moderate inflation to the Fed’s two-percent target.

JEL-codes: E44 E52 E65 (search for similar items in EconPapers)
Date: 2023-04
New Economics Papers: this item is included in nep-cba and nep-mon
Note: EFG IFM ME
References: Add references at CitEc
Citations:

Downloads: (external link)
http://www.nber.org/papers/w31129.pdf (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:nbr:nberwo:31129

Ordering information: This working paper can be ordered from
http://www.nber.org/papers/w31129

Access Statistics for this paper

More papers in NBER Working Papers from National Bureau of Economic Research, Inc National Bureau of Economic Research, 1050 Massachusetts Avenue Cambridge, MA 02138, U.S.A.. Contact information at EDIRC.
Bibliographic data for series maintained by ().