The price-dividend relationship in inflationary and deflationary regimes

This paper argues that the linear price-dividend relationship as predicted in the Gordon [1962. The Investment, Financing, and Valuation of the Corporation. Irvin, Homewood, IL] model breaks down in regimes of high inflation and deflation. Using data for the US and the UK over the period from 1871 to 2002, nonlinear estimates support the prediction of the model.