Economic growth, inflation and stock market development: a panel var approach

• Autor(a) principal: Mota, João Vasco Oliveira
• Data de Publicação: 2016
• Tipo de documento: Dissertação
• Idioma: eng
• Título da fonte: Repositório Científico de Acesso Aberto de Portugal (Repositórios Cientìficos)
• Texto Completo: http://hdl.handle.net/10400.6/5735
• topic: Crescimento Económico; Desenvolvimento de Mercados de Capitais; Inflação.; Painel Var; Pca; Domínio/Área Científica::Ciências Sociais::Economia e Gestão

The dynamic relationship between economic growth, inflation and stock market development was examined for 31 countries from the entire world, for the period from 2000 to 2014, by using annual data. In order to better measure the stock market development a composite variable was created through the principal component analysis. To assess the interdependence among the variables, and Granger causalities, a panel vector auto-regressive model, was estimated. This research differs from the others by using a methodology that allows testing the hypotheses in both directions in Granger casualties, which is scarce in literature. The study finds bi-directional causality running from stock markets development to economic growth, from stock markets development to inflation and a unidirectional causality from economic growth to inflation. The impulse response functions and the forecast-error variance decomposition show that most of the shocks exert their effect during the first two years. The research supports that the development of stock markets stimulates economic growth.