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Animal Spirits, the Stock Market, and the Unemployment Rate: Some Evidence for German Data

Ulrich Fritsche () and Christian Pierdzioch

No 201601, Macroeconomics and Finance Series from University of Hamburg, Department of Socioeconomics

Abstract: Models recently studied by Farmer (2012, 2013, 2015) predict that, due to labor-market frictions and "animal spirits", stock-market fluctuations should Granger cause fluctuations of the unemployment rate. We performed several Granger-causality tests on more than half a century of data of German data to test this hypothesis. Confirming findings documented by Farmer (2015) for U.S. data, we found that the stock market Granger causes unemployment in the short run and the long run when we control for a deterministic trend in the unemployment rate. Results of a frequency-domain test show that, in the short run, feedback cannot be rejected, whereas the causality clearly runs from the stock market to the unemployment rate in the medium to long run.

Keywords: Cointegration; Granger causality; frequency domain; animal spirits; stock market; unemployment rate (search for similar items in EconPapers)
JEL-codes: E12 E44 C32 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-eec and nep-mac
Date: 2016-01
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https://www.wiso.uni-hamburg.de/repec/hepdoc/macppr_1_2016.pdf First version, 2016 (application/pdf)

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Journal Article: Animal spirits, the stock market, and the unemployment rate: Some evidence for German data (2017) Downloads
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