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Has the correlation of inflation and stock prices changed in the United States over the last two centuries?

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  • Antonakakis, Nikolaos
  • Gupta, Rangan
  • Tiwari, Aviral K.

Abstract

The relationship between stock prices and the inflation can be either negative or positive, depending on the strengths of various theoretical channels at work. In this study, we examine the dynamic conditional correlations of stock prices and inflation in the United States over the period of 1791–2015 under a time-varying framework. The results of our empirical analysis reveal that correlations between the inflation and stock prices in the United States evolve heterogeneously overtime. In particular, the correlations are significantly positive in the 1840s, 1860s, 1930s and 2011, and significantly negative otherwise. The policy implications of these findings are then discussed.

Suggested Citation

  • Antonakakis, Nikolaos & Gupta, Rangan & Tiwari, Aviral K., 2017. "Has the correlation of inflation and stock prices changed in the United States over the last two centuries?," Research in International Business and Finance, Elsevier, vol. 42(C), pages 1-8.
    • Handle: RePEc:eee:riibaf:v:42:y:2017:i:c:p:1-8
    DOI: 10.1016/j.ribaf.2017.04.005
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    More about this item

    Keywords

    Conditional correlation; GARCH; Inflation and stock price comovement; US economy;
    All these keywords.

    JEL classification:

    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models
    • C50 - Mathematical and Quantitative Methods - - Econometric Modeling - - - General
    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • G1 - Financial Economics - - General Financial Markets
    • N1 - Economic History - - Macroeconomics and Monetary Economics; Industrial Structure; Growth; Fluctuations

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