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Financial Market Volatility and the World-wide Fall in Inflation

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  • David Gruen

    (Reserve Bank of Australia)

Abstract

Inflation in the 1990s in most industrial countries is lower and less variable than at any time in the past quarter of a century. Economic theory predicts that, other things equal, this decline in inflation variability should lead to less volatility in both bond and foreign exchange markets. The paper tests these theoretical predictions and finds some evidence that lower inflation variability leads to less volatility of bond yields, but almost no evidence that it leads to lower volatility of floating exchange rates.

Suggested Citation

  • David Gruen, 1995. "Financial Market Volatility and the World-wide Fall in Inflation," RBA Research Discussion Papers rdp9513, Reserve Bank of Australia.
    • Handle: RePEc:rba:rbardp:rdp9513
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    File URL: https://www.rba.gov.au/publications/rdp/1995/pdf/rdp9513.pdf
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    References listed on IDEAS

    as
    1. Lyons, Richard K., 1990. "Whence exchange rate overshooting: Money stock or flow?," Journal of International Economics, Elsevier, vol. 29(3-4), pages 369-384, November.
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    Cited by:

    1. Malcolm Edey & John Romalis, 1996. "Issues in Modelling Monetary Policy," RBA Research Discussion Papers rdp9604, Reserve Bank of Australia.

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