Inflation and asset returns

Michelle Barnes, John H. Boyd, Bruce D. Smith

Research output: Contribution to journalArticlepeer-review

71 Scopus citations


Sustained inflation is detrimental to long-run growth and the financial system. A recent theoretical literature suggests that high inflation implies low real returns on assets. These low returns exacerbate informational frictions, interfering with the functioning of financial markets and the allocation of investment. We investigate the plausibility of an inverse relationship between inflation and real returns. Inflation and nominal equity returns are negatively correlated or uncorrelated for all low-to-moderate inflation economies examined. Safe nominal rates of return and inflation are only weakly positively correlated. However, for high inflation economies inflation and nominal returns are strongly positively correlated.

Original languageEnglish (US)
Pages (from-to)737-754
Number of pages18
JournalEuropean Economic Review
Issue number4-6
StatePublished - Apr 1999


  • Asset returns
  • Inflation


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