Analysis on risk of investment in stocks by change of real economy : dynamic relationship between the transmission of shocks of output¡¤oil price to inflation and the rate of stock return
Ji-Yong Seo
The study analyzes the dynamic relationship between the oil price pass-through into inflation and KOSPI stock index and the power of influential factors contributing to the relationship through the phillips curve including oil price term, rolling regression, and 2-factor model. The findings are as below. First, supply shock to inflation, oil price factor, is more influential than demand shock like a output gap factor in Korea. Second, the beta meaning the relationship between the oil price pass-through into inflation and KOSPI stock index has been negatively increased since 2000s. Third, several factors contributing to decreasing the inflationary pressure are the active monetary policy from the financial authorities and the revaluation of Korean Won. As a result, it is understood that the inflationary pressure to stock market attributed to a speedy rising of oil price is increased even though effective monetary policy and revaluation of Korean Won contribute to decreasing of the inflation. Furthermore, it is suggested that the supply shock to inflation from oil price could be minimized by anticipative monetary policy.
The oil pass-through into inflation,Phillips curve,Rolling regression,Two-factor model
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