INFLATION AND THE REAL PRICE OF EQUITIES - THEORY WITH SOME EMPIRICAL-EVIDENCE

This paper examines a channel of monetary transmission through the sto ck market. Theoretically, the model predicts an unambiguously negative relationship between money and real activity through the stock prices channel. Empirically, the evidence is in favor of a predominantly neg ative correlation between money and stock prices, mainly in the period prior to the 1980s. However, shocks to money have a transitory effect on stock prices.