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Studies in Nonlinear Dynamics & Econometrics

Ed. by Mizrach, Bruce

IMPACT FACTOR 2017: 0.855

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SCImago Journal Rank (SJR) 2017: 0.668
Source Normalized Impact per Paper (SNIP) 2017: 0.894

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Volume 15, Issue 2


Volume 23 (2019)

Analysing the Dynamics between U.S. Inflation and Dow Jones Index Using Non-Linear Methods

Stella Karagianni / Catherine Kyrtsou
Published Online: 2011-03-07 | DOI: https://doi.org/10.2202/1558-3708.1346

A growing body of literature concentrates on the linear dependence between stock returns and inflation. Although the recent empirical evidence suggested the presence of complexities, to our knowledge only a few works have investigated the existence of a potential nonlinear stock returns-inflation relationship. In order to study in more depth the dynamic attributes of this puzzle, we suggest a quite different framework where the primary goal is to explore the association between their underlying dynamics. Through the use of the Recurrence Quantification Analysis (Webber and Zbilut (1994)), the test for structural breaks of Bai and Perron (1998) and the test for nonlinear causality of Diks and Panchenko (2006), we find evidence in favour of negative nonlinear linkages between the inherent dynamics of inflation and stock returns. The presence of nonlinearity reinforces uncertainty. As long as inter-dependences are complex and nonlinear, small perturbations in fundamentals can lead to unexpected propagations within the financial system.

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Published Online: 2011-03-07

Citation Information: Studies in Nonlinear Dynamics & Econometrics, Volume 15, Issue 2, ISSN (Online) 1558-3708, DOI: https://doi.org/10.2202/1558-3708.1346.

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