MONEY STOCK PRICES AND ECONOMIC ACTIVITY IN SELECTED EUROPEAN COUNTRIES

Lum r Kulh Nek ()

Journal of Advanced Studies in Finance, 2011, vol. 2, issue 2, 101-115

Abstract: The behavior of stock market prices and macroeconomic variables are a subject of investigations both of policymakers and also economists This paper is concerned with causal linkages among money supply output and stock price development in the selected European countries The main objective is to investigate and evaluate long run equilibrium relationships between macroeconomic variables and stock prices as well as shortrun dynamics using both the Vector Autoregressive VAR and Vector Error Correction VEC models in the analyzed countries The emphasis of this paper in addition to evidence presented is garnered from the Euro area and six EU counties the Czech Republic Poland Slovak Republic Austria Germany and the United Kingdom Money supply M2 national stock market indices and real gross domestic product are used in this study In the analysis quarterly data in the sample period from 1995 Q1 to 2011 Q2 has been applied We have applied tests for stationarity and co integration and it has been discovered that there is a long run co integration relationship between money supply stock prices and output We have estimated both a VAR model and VEC model and we have also generated impulse response functions from the estimated VAR models along with comparing the usefulness of VAR and VEC models for the real gross domestic product growth modelling The evidence obtained from the analysis of time series suggests that in all cases we can discover the long run relationships among variables applied Money supply and stock market development have a certain predictive content for the real economic activity When considering the results of the short run analyses we have to accept the great differences among countries Based on the results of comparisons and evaluations of the VEC and the VAR models we may state that VEC models are significantly better when the co integrating relationships are enforced

Date: 2011
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Persistent link: https://EconPapers.repec.org/RePEc:srs:jasf00:v:2:y:2011:i:2:p:101-115

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