Is Disinflation Good for the Stock Market?

Henry, Peter Blair

doi:10.2139/ssrn.246230

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Is Disinflation Good for the Stock Market?

47 Pages Posted: 14 Feb 2001

See all articles by Peter Blair Henry

Peter Blair Henry

New York University (NYU) - Leonard N. Stern School of Business; National Bureau of Economic Research (NBER); NYU Stern Department of Finance

There are 3 versions of this paper

Date Written: February 2001

Abstract

When countries attempt to stabilize annual inflation rates that are greater than 40 percent, the domestic stock market appreciates by 24 percent on average. The present value of the long-run benefits to shareholders of reducing high inflation outweighs the present value of the short-run costs. In contrast, the average market response is economically weak and statistically insignificant, if the pre-stabilization inflation rate is less than 40 percent. Stock market responses also help predict the change in inflation and output in the year following stabilization efforts. This additional result indicates that the stock market evidence for the 81 episodes studied is not spurious.

Note: Previously titled "Is Disinflation Good for Growth?"

Keywords: Disinflation, Stock Market, Growth, Stabilization, Inflation

JEL Classification: E0, F3, F4, G1

Suggested Citation: Suggested Citation

Henry, Peter Blair, Is Disinflation Good for the Stock Market? (February 2001). Available at SSRN: https://ssrn.com/abstract=246230 or http://dx.doi.org/10.2139/ssrn.246230