Inflation and the Stock Market

24 Pages Posted: 28 May 2004 Last revised: 19 Oct 2008

See all articles by Martin S. Feldstein

Martin S. Feldstein

National Bureau of Economic Research (NBER); Harvard University

Date Written: August 1978

Abstract

This paper discusses a crucial cause of the failure of share prices to rise during a decade of substantial inflation. Indeed, the share value per dollar of pretax earnings actually fell from 10.82 in 1967 to 6.65 in 1976. The analysis here indicates that this inverse relation between higher inflation and lower share prices during the past decade was not due to chance or to other unrelated economic events. On the contrary, an important adverse effect of increased inflation on share prices results from basic features of the current U.S. tax laws, particularly historic cost depreciation and the taxation of nominal capital gains.

Suggested Citation

Feldstein, Martin S., Inflation and the Stock Market (August 1978). NBER Working Paper No. w0276. Available at SSRN: https://ssrn.com/abstract=253123

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