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International Journal of Economics and Financial Research

Online ISSN: 2411-9407
Print ISSN: 2413-8533

Quarterly Published (4 Issues Per Year)

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Volume 8 Number 4 December 2022

Japan and the United Kingdom: The Inflation Irrelevance Proposition

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Authors: Samih Antoine Azar
Pages: 123-128
DOI: doi.org/10.32861/ijefr.84.123.128
Abstract

This paper is about the generalized proposition of inflation irrelevance. The weak-form version of inflation irrelevance holds that stock prices are independent of inflation rates. The semi-strong form version is that stock prices are independent of both domestic and foreign inflation rates. The strong, or generalized, version is that stock returns are independent of all three rates, domestic and foreign inflation rates, and changes in foreign exchange rates. Overall, the three forms fail to be rejected separately and jointly under conventional marginal significance levels. The conclusion from this paper is that inflation irrelevance, or nominal neutrality, is a common characteristic in the two countries studied, Japan and the United Kingdom. Therefore, the statistical evidence is mounting manifestly, and is pervasive and applies to diverse economies, among which Japan and UK. This regularity amounts to an international stylized empirical fact that cannot be ignored.

The Determinants of Inflation in Cote D'ivoire: An Explanatory Model

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Authors: SILUE Drissa
Pages: 112-122
DOI: doi.org/10.32861/ijefr.84.112.122
Abstract

This study examines the determinants of inflation in Côte d’Ivoire through an error correction inflation model. It shows that the variables that contribute most to inflation in Côte d’Ivoire are diverse and of varying magnitude. We note the preponderance of monetary inﬂation in the long run with an elasticity of 0.32 against an elasticity of 0.22 points for the output of the agricultural sector. In the short run, the inﬂation is due to the increase in credit oﬀre and insufficient oﬀre in the agricultural commodity market.

Canada: The Inflation Irrelevance Proposition

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Authors: Samih Antoine Azar
Pages: 104-111
DOI: doi.org/10.32861/ijefr.84.104.111
Abstract

The underlying thesis is that inflation does not impact in a significant way stock returns. A stronger thesis is that both domestic and foreign inflation rates are neutral to stock returns. This joint hypothesis is tested for Canada, using 5 theoretical models that describe the determinants of Canadian stock returns. These models range from the most stripped one to the least constrained. All 5 models produce evidence of the strong inflation irrelevance hypothesis for the two key variables, Canadian and foreign (US) inflation rates. Naturally, the largest theoretical model is to be selected for inference purposes. This model includes 12 explanatory variables: 2 inflation rates, 2 proxies for earnings, 2 local duration effects, 2 foreign (US) duration effects, the Canadian/US dollar foreign exchange rate, the price of oil, and two categorical variables that pick up the effect of foreign (US) stock markets. The results show that the model provides sign and size effects in conformity with expectations from the theoretical macroeconomic interrelationships. Hence, the paper, besides documenting inflation neutrality, models in a meaningful manner the determinants of the stock market. All in all the empirical results are largely supportive.