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Stock market development and real economic activity in Peru

Erick Lahura and Marco Vega ()

Empirical Economics, 2017, vol. 53, issue 3, 1011-1038

Abstract: Abstract We explore the causal effect of stock market development on real economic activity in Peru by setting up a simple growth model that underpins long-run identifying restrictions for vector autoregressive models. This allows us to identify stock market shocks and to uncover the dynamic response of real output per capita. Using annual time series data for the period 1965–2013, we find that stock market shocks have had a short-run causal effect on real GDP per capita only after 1991, a result that is consistent with standard Granger causality tests; however, the contribution of stock market shocks to output growth dynamics has been small. Thus, policy actions aimed at further developing the Peruvian stock market may have a positive impact on the dynamics of economic growth.

Keywords: Stock market development; Output growth; VAR; Long-run restrictions (search for similar items in EconPapers)
Date: 2017
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DOI: 10.1007/s00181-016-1149-6

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