J. L. Kellogg Graduate School of Management, Northwestern University. I would like to thank Tim Bollerslev, Marty Eichenbaum, Robert Hodrick, Albert Marcet, Ben McCallum, Ken Singleton, George Tauchen, Randy Wright, and an anonymous referee for their suggestions. Any remaining errors are mine. This is a revised version of an earlier paper entitled “Inflation and Asset Returns in a Monetary Economy: Empirical Results.” Financial support from an Alfred P. Sloan Doctoral Dissertation Fellowship and from a National Science Foundation doctoral dissertation supplemental grant is gratefully acknowledged.
Inflation and Asset Returns in a Monetary Economy
Article first published online: 30 APR 2012
1992 The American Finance Association
The Journal of Finance
Volume 47, Issue 4, pages 1315–1342, September 1992
How to Cite
MARSHALL, D. A. (1992), Inflation and Asset Returns in a Monetary Economy. The Journal of Finance, 47: 1315–1342. doi: 10.1111/j.1540-6261.1992.tb04660.x
- Issue published online: 30 APR 2012
- Article first published online: 30 APR 2012
Postwar U.S. data are characterized by negative correlations between real equity returns and inflation and by positive correlations between real equity returns and money growth. These patterns are closely matched quantitatively by an equilibrium monetary asset pricing model. The model also implies negative correlations between expected asset returns and expected inflation, and it predicts that the inflation-asset return correlation will be more strongly negative when inflation is generated by fluctuations in real economic activity than when it is generated by monetary fluctuations.