Financial Market and Macroeconomic Volatility - Relationships and Some Puzzles -

Shinobu Nakagawa and Naoto Osawa
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Shinobu Nakagawa: Bank of Japan
Naoto Osawa: Bank of Japan

Bank of Japan Working Paper Series from Bank of Japan

Abstract: This paper investigates whether the volatility in financial markets is interrelated and whether financial market volatility is related to macroeconomic variability by utilizing a VAR. After investigating Japan, the United States, the United Kingdom and Germany, this paper presents three findings. First, by and large stock and bond return volatility can help predict exchange rate volatility. Second, there is evidence that volatility in some financial markets can help explain the volatility of some macroeconomic measures. There is also evidence that the relationship works in the opposite direction. Finally, this paper identifies some puzzling characteristics of financial markets in Japan. Compared with other countries, Japan has experienced lower bond market volatility and higher foreign exchange volatility, both of which are not associated with macroeconomic volatility.

Date: 2000-05
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Persistent link: https://EconPapers.repec.org/RePEc:boj:bojwps:00-e-9r

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