Extracting inflation from stock returns to test purchasing power parity

• 成果类型: Article
• 署名作者: Chowdhry, B; Roll, R; Xia, YH
• 署名单位: University of California System; University of California Los Angeles
• 刊物名称: AMERICAN ECONOMIC REVIEW
• ISSN/ISSBN: 0002-8282
• DOI: 10.1257/0002828053828554
• 发表日期: 2005
• 页码: 255-276
• 关键词: real exchange-rates; menu costs; hysteresis; MARKET; MODEL

摘要

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.