A MULTIVARIATE REGIME SWITCHING APPROACH TO THE RELATION BETWEEN THE STOCK MARKET, THE INTEREST RATE AND OUTPUT

Angelos Kanas ()
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Angelos Kanas: Department of Economics, University of Crete, Gallos Campus, 74100 Rethymno, Greece;

International Journal of Theoretical and Applied Finance (IJTAF), 2008, vol. 11, issue 07, 657-671

Abstract: This paper presents empirical evidence that the relation between stock returns, real activity and interest rates for the US is regime dependent. Fixed exchange rates, and interest rate targeting are associated with a regime in which the joint behavior of these three variables is characterized by low volatility, whilst monetary aggregates targeting is associated with a high volatility regime. Both the contemporaneous and the dynamic relations change across regimes. Regime-dependent dynamic effects arise from interest rates to real activity, from stock returns to real activity and interest rates, and from real activity to interest rates. Dynamic impulse responses also vary across regimes.

Keywords: Regimes; proxy hypothesis; impulse responses (search for similar items in EconPapers)
Date: 2008
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DOI: 10.1142/S021902490800497X

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