Stock returns, inflation and economic activity

Authors

  • Nelson da Silva Banco Central do Brasil
  • Sidney Martins Caetano Departamento de Economia - Universidade Federal de Juiz de Fora

DOI:

https://doi.org/10.11606/1980-5330/ea137954

Keywords:

stock return-inflation, proxy hypothesis, wavelets

Abstract

The paper empirically investigates the relations between stock return, inflation and economic activity for Brazilian monthly data (1996-2017). We analyzed the wavelet variance and correlation and estimated regressions at levels of scale. The results do not corroborate the main hypothesis that a negative relation between inflation and economic activity would induce the negative relation between real stock return and inflation. Furthermore, the relation between real stock return and economic activity is not independent of inflation. In terms of scale, cycles of medium and long terms predominate on the inflation and output gap, while in the composition of the industrial production growth rate and the real return of the stock index, the short-term component is the determinant.

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Author Biographies

  • Nelson da Silva, Banco Central do Brasil

    Departamento de Estudos e Pesquisas, Banco Central do Brasil.

    E-mail: nelson.silva@bcb.gov.br

  • Sidney Martins Caetano, Departamento de Economia - Universidade Federal de Juiz de Fora

    Departamento de Economia, Universidade Federal de Juiz de Fora - UFJF. Bolsista de Produtividade
    em Pesquisa do CNPq.

    E-mail: sidney.caetano@ufjf.edu.br

Published

2019-03-01

Issue

Section

Papers

How to Cite

Silva, N. da, & Caetano, S. M. (2019). Stock returns, inflation and economic activity. Economia Aplicada, 23(1), 43-82. https://doi.org/10.11606/1980-5330/ea137954