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Type: Journal article
Title: Inflation and asset returns
Author: Barnes, Michelle L.
Boyd, John H.
Smith, Bruce D.
Citation: European Economic Review, 1999; 42(4):737-754
Issue Date: 1999
ISSN: 0014-2921
Statement of
Barnes, Michelle; Boyd, John H; Smith, Bruce D
Abstract: Sustained inflation is detrimental to long-run growth and the financial system. A recent theoretical literature suggests that high inflation implies low real returns on assets. These low returns exacerbate informational frictions, interfering with the functioning of financial markets and the allocation of investment. We investigate the plausibility of an inverse relationship between inflation and real returns. Inflation and nominal equity returns are negatively correlated or uncorrelated for all low-to-moderate inflation economies examined. Safe nominal rates of return and inflation are only weakly positively correlated. However, for high inflation economies inflation and nominal returns are strongly positively correlated.
DOI: 10.1016/S0014-2921(98)00090-7
Appears in Collections:Economics publications

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