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This paper investigates the effects of military and non-military public expenditures on gross private investment using cointegration and error-correction analysis. The latter type of public spending is disagreggated into expenditures of infrastructure, consumption and other general government expenditures. The empirical evidence from four emerging European countries namely, Greece, Ireland, Portugal and Spain suggests that in some cases public capital spending stimulates investment, while in others it depresses it. Also, the results tentatively indicate that defence spending exerts no influence on private investment, thus adding to the ongoing controversy of the economic effects of military spending.

This paper examines the dynamic interactions among the equity market, economic activity, inflation, and monetary policy under three monetary policy regimes using bivariate and multivariate vector autoregressive cointegrating specifications. The bivariate results for the real stock returns-inflation pair weakly support a negative correlation in the 1970s and 1980s. While the bivariate findings suggest a weak, negative relationship between real returns and the federal funds in the 1970s and 1980s, the multivariate findings strongly support short-term linkages in the 1970s. There appears to be no consistent dynamic relationship between monetary policy and stock prices in that the relationship differs across monetary regimes. Copyright 2006, The Eastern Finance Association.

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