DP1614 Stock Returns, Term Structure, Inflation and Real Activity: An International Perspective

Author(s): Fabio Canova, Gianni de Nicolò
Publication Date: March 1997
Keyword(s): Business Cycles, Financial Markets, International Stock Returns, Transmission
JEL(s): C15, E43
Programme Areas: International Macroeconomics
Link to this Page: cepr.org/active/publications/discussion_papers/dp.php?dpno=1614

This paper analyses the empirical interdependence of asset returns, real activity and inflation from a multicountry and international point of view. We find that nominal stock returns are significantly related to inflation only in the United States, that the US term structure of interest rates predicts both domestic and foreign inflation rates while foreign term structures do not have this predictive power and that innovations in inflation and exchange rates induce insignificant responses of real and financial variables. An interpretation of the dynamics and some policy implications of the results are provided.