Asset prices and inflation is there a predictive link

Abstract

The relationship between asset prices and consumer price inflation has been in the limelight again in the last decade.The reason has been the observed linkages in the early 1990's between housing as well as stock market prices and consumer prices in Japan and UK. Rapid asset price appreciation in these countries was follwed with a lag, by consumer price inflation.Such developments have even sparked off debates about the need to replace conventional consumer price measures with a broader definitions, which includes asset prices. It seems important, therefore, to ascertain wheather asset prices influence consumer prices in general, for a broader spectrum of countries. We choose a sample including major industrial countries as well as emerging markets, and test for the significance of housing prices and share prices in predicting inflations.Longer, higher frequency, time series data as well as cross-section information are used to establish asset price- consumer price links for the sampl...