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

Author(s): Fabio Canova , Gianni de Nicolo

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: www.cepr.org/pubs/dps/DP1614.asp

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.