Alexandre ANGELLOZ-NICOUD – Stocks price growth, a reason for the lack of inflation?

Alexandre ANGELLOZ-NICOUD

Title Stocks price growth, a reason for the lack of inflation?
Abstract 
From 2008 to 2019, inflation has always been lower than money creation. However, according to the quantity theory of money, this situation is not possible on the long run. Over the same period, stocks valuation growth increased significantly. Therefore, a question arises: can rising stocks prices theoreticaly explain a low inflation?
In a New Monetarist environment (built on Lagos and Wright, 2005), I introduce a decentralized market for stocks. It generates a trade off between the demand for money to buy goods and the demand for money to buy stocks. In this model, under certain conditions, an increase in the money growth rate raises stock prices more than proportionally and generates inflation lower than the money growth rate. The growth in money supply could therefore have fuelled a rise in stocks prices instead of inflation.
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