Extracting Inflation from Stock Returns to Test Purchasing Power Parity
Relative purchasing power parity (PPP) holds for pure price inflations, which affect prices of all goods and services by the same proportion, while leaving relative prices unchanged. Pure price inflations also affect nominal returns of all traded financial assets by exactly the same amount. Recogniz...
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| Veröffentlicht in: | The American economic review 2005-03, Vol.95 (1), p.255-276 |
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| container_end_page | 276 |
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| container_title | The American economic review |
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| creator | Chowdhry, Bhagwan Roll, Richard Xia, Yihong |
| description | Relative purchasing power parity (PPP) holds for pure price inflations, which affect prices of all goods and services by the same proportion, while leaving relative prices unchanged. Pure price inflations also affect nominal returns of all traded financial assets by exactly the same amount. Recognizing that relative PPP may not hold for the official inflation data constructed from commodity price indices because of relative price changes and other frictions that cause prices to be "sticky," we provide a novel method for extracting a proxy for realized pure price inflation from stock returns. We find strong support for relative PPP in the short run using the extracted inflation measures. |
| doi_str_mv | 10.1257/0002828053828554 |
| format | Article |
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Pure price inflations also affect nominal returns of all traded financial assets by exactly the same amount. Recognizing that relative PPP may not hold for the official inflation data constructed from commodity price indices because of relative price changes and other frictions that cause prices to be "sticky," we provide a novel method for extracting a proxy for realized pure price inflation from stock returns. We find strong support for relative PPP in the short run using the extracted inflation measures.</abstract><cop>Nashville</cop><pub>American Economic Association</pub><doi>10.1257/0002828053828554</doi><tpages>22</tpages><oa>free_for_read</oa></addata></record> |
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| source | Jstor Complete Legacy; Business Source Complete; American Economic Association Web |
| subjects | Capital market Consumer Price Index Economic models Empirical research Estimation Exchange rates Expectation Financial assets Foreign exchange rates Germany Inflation Inflation rates Japan Methodology Monetary economics Monetary policy Null hypothesis P values Point estimators Price level Prices Purchasing power parity Rates of return Standard error Stock prices Stock returns Studies Time series U.S.A United Kingdom |
| title | Extracting Inflation from Stock Returns to Test Purchasing Power Parity |
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