| Author Name | Willem THORBECKE (Senior Fellow, RIETI) |
|---|---|
| Creation Date/NO. | December 2024 24-E-087 |
| Research Project | Economic Shocks, the Japanese and World Economies, and Possible Policy Responses |
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Abstract
Inflation remained quiescent for several decades and then surged in 2021 and 2022. Inflation subsequently fell in 2023 and 2024. This paper investigates how the rise and fall of inflation after 2019 affected the U.S. stock market. To do this, it estimates a fully specified multi-factor model that measures the exposure of 54 assets to inflation, monetary policy, and other macroeconomic variables over the 1994 to 2019 period. The paper then uses the inflation betas to investigate how investors’ perceptions of inflation changed between 2020 and 2024. The results indicate that concerns about inflation roiled the stock market over this period. The Fed’s anti-inflationary policies whipsawed markets even more. These findings highlight the dangers that arise when monetary policy allows inflation to accelerate.
Published: Thorbecke, Willem. "The Impact of Inflation on the U.S. Stock Market After the COVID-19 Pandemic," International Journal of Financial Studies, Volume 13, Issue 1 (2025), 9.
https://www.mdpi.com/2227-7072/13/1/9
