The quantity theory of stock prices

We determine the implications of Modern Quantity Theory Money for nominal pricing equity stocks. Our analysis is compatible with hypothesis that ratio quantity money in circulation to a comprehensive index stock prices evolves terms an elastic (that is, mean reverting) random walk. Using annual U.S. data covering period from 1871 until 2018 shows ‘half-life’ it takes price converge towards its long-run mean, around fifteen years. empirical also unexpected inflation has disruptive impact on output and investment decisions implemented by firms leads increase (equivalently, falls relative circulation). develop framework determining how economic agents can rebalance their portfolios response disequilibria thereby maximise expected discounted utility obtained future consumption.