Stock Prices And Inflation: Evidence From 12 Developed & Emerging Economies

Abstract

Using a dynamic model that allows direct estimation of short and long-run impacts of changes in goods prices on stock prices, we find that the long-run Fisher elasticities of stock prices with respect to goods prices exceed unity in 12 developed and emerging economies. Our results provide significant support for Darby’s tax version of the Fisher effect. We also find that inflation and stock prices are negatively related in the short-run.