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Japan and the United Kingdom: The Inflation Irrelevance Proposition

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  • Samih Antoine Azar

    (Full Professor Faculty of Business Administration & Economics Haigazian University Mexique Street, Kantari, Beirut, Lebanon)

Abstract

This paper is about the generalized proposition of inflation irrelevance. The weak-form version of inflation irrelevance holds that stock prices are independent of inflation rates. The semi-strong form version is that stock prices are independent of both domestic and foreign inflation rates. The strong, or generalized, version is that stock returns are independent of all three rates, domestic and foreign inflation rates, and changes in foreign exchange rates. Overall, the three forms fail to be rejected separately and jointly under conventional marginal significance levels. The conclusion from this paper is that inflation irrelevance, or nominal neutrality, is a common characteristic in the two countries studied, Japan and the United Kingdom. Therefore, the statistical evidence is mounting manifestly, and is pervasive and applies to diverse economies, among which Japan and UK. This regularity amounts to an international stylized empirical fact that cannot be ignored.

Suggested Citation

  • Samih Antoine Azar, 2022. "Japan and the United Kingdom: The Inflation Irrelevance Proposition," International Journal of Economics and Financial Research, Academic Research Publishing Group, vol. 8(4), pages 123-128, 12-2022.
  • Handle: RePEc:arp:ijefrr:2022:p:123-128
    DOI: 10.32861/ijefr.84.123.128
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    References listed on IDEAS

    as
    1. Mehra, Rajnish & Prescott, Edward C., 1985. "The equity premium: A puzzle," Journal of Monetary Economics, Elsevier, vol. 15(2), pages 145-161, March.
    2. Engle, Robert F & Ng, Victor K, 1993. "Measuring and Testing the Impact of News on Volatility," Journal of Finance, American Finance Association, vol. 48(5), pages 1749-1778, December.
    3. Samih Antoine Azar, 2022. "Canada: The Inflation Irrelevance Proposition," International Journal of Economics and Financial Research, Academic Research Publishing Group, vol. 8(4), pages 104-111, 12-2022.
    4. Samih Antoine Azar, 2010. "Inflation and stock returns," International Journal of Accounting and Finance, Inderscience Enterprises Ltd, vol. 2(3/4), pages 254-274.
    5. Mehra, Rajnish & Prescott, Edward C., 2003. "The equity premium in retrospect," Handbook of the Economics of Finance, in: G.M. Constantinides & M. Harris & R. M. Stulz (ed.), Handbook of the Economics of Finance, edition 1, volume 1, chapter 14, pages 889-938, Elsevier.
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