1124 The Journal of finane in 1857, and they are all railroad stocks. Nevertheless, they represent most of he actively traded equity securities at that time. Also, railroads owned a wide variety of assets at that time i have calculated tests for changes in stock volatility around the times when major changes in the composition of the portfolio occurred and, surprisingly there is no evidence of significant changes. Schwert(1989d) analyzes several alternative indices of United States stock returns for the 19th century and finds that the different portfolios have similar volatility after 1834 Though the number of securities and industries included has grown over time the plot of stock return volatility in figure l does not show a downward trend This conclusion contrasts with the analysis of unemployment, industrial pro duction, and gross national product data by romer (1986a, b, 1989 ) Also, when the Bureau of Labor Statistics has expanded the monthly sample used to calculate the CPI inflation series, there have been noticeable reductions in the volatility of measured inflation rates. Shapiro (1988) argues that the stability of stock return volatility between the 19th and 20th centuries supports Romer's conclu sions that the higher level of volatility in pre-1930 macroeconomic data is primarily due to measurement problems. Nonetheless, it is perhaps surprising that stock return volatility is not higher in the 19th century due to measurement problems IL. Relations between Stock Market Volatility and Macroeconomic Volatility A. Volatility of Inflation and Monetary Growth The stock returns analyzed above all measure nominal(dollar) payoffs. When inflation of goods' prices is uncertain, the volatility of nominal asset returns should reflect inflation volatility. I use the algorithm in equations(3a)and (3b) to estimate monthly inflation volatility from 1858 to 1987 for the PPI inflation rate. Figure 4 plots the predicted PPI inflation volatility lepe! from 1859 to 1987 Note that the right-hand PPI inflation volatility about的 smaller than the left-hand stock volatility axis. The volatility of infation was very high around the Civil War(1860-1869), reflecting changes in the value of currency relative to gold after the U.S. went off the gold standard in 1862. Since the U. K remained on the gold standard, this also represents volatility in the exchange rates between U.S. and U.K. currencies. The Spanish-American War(1898), World War I and its aftermath(1914-1921), and World War II (1941-1946)are also periods of high inflation uncertainty. Another increase in inflation volatility occurred during the 1973-1974 oPeC oil crisis. While inflation volatility increased during the 1929-1939 period, this change is minor compared with the volatility that occurred during wars Figure 5 plots the predicted volatility of the monetary base growth rates |em om 1880 to 1987. The volatility of money base growth rates rose during the bank panic and recession of 1893 and remained high until about 1900. The next sharp increase in volatility occurred during the bank panic of 1907. The period following the formation of the Federal Reserve System(1914-1923)was another period of high volatility. Finally, the period of the great Depression(1929-1939)