Monetary and fiscal policy transmission in the Euro-area: evidence from a structural VAR analysis

Aarle, Bas van; Garretsen, Harry; Gobbin, Niko

doi:10.1016/s0148-6195(03)00056-0

Cited by 59 publications

(29 citation statements)

References 16 publications

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“…High interest rates mean higher cost of capital for the industry, lower profits and hence lower stock prices. The findings are consistent with [4,14,17,19,21]; but contrast to the findings of Van Aarle et al [22] and Udegbunam and Oaikhenan [23].…”

Section: Ardl Bounds Testsupporting

confidence: 87%

“…In contrast, Van Aarle et al [22] used a structural vector auto-regression (SVAR) approach and provide evidence supporting the positive relationship between fiscal policy and stock prices using structural VAR analysis. Udegbunam and Oaikhenan [23] found that money-financed deficits have an ambiguously positive effect on stock prices in the short run.…”

Section: Literature Reviewmentioning

confidence: 99%

“…Higher prices imply a reduction in demand and this in turn would reduce profit margins of companies, thus slowing down production and growth (Money Control). Whereas some researchers found a positive association between Fiscal Deficit and Stock prices [21][22][23], few others found an ambiguous relationship between Fiscal Deficit and stock prices [24,25].…”

Section: Model Specification and Datamentioning

confidence: 99%

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Fiscal Deficits and Stock Prices in India: Empirical Evidence

Joshi

Giri

2015

IJFS

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Abstract:The study aims at examining how fiscal deficits affect the performance of the stock market in India by using annual data from 1988-2012. The study makes use of Ng-Perron unit root tests to check the non-stationarity property of the series; the Auto Regressive Distributed Lag (ARDL) bounds test and a Vector Error Correction Model (VECM) for testing both short and long run dynamic relationships. The variance decomposition (VDC) is used to predict the exogenous shocks of the variables. The findings of the bounds test reveal that the estimated equation and the series are co-integrated. The ARDL results suggest a long run negative relationship exists between budget deficit and stock prices and do not show any significant relationship in the short run. The VECM result shows that fiscal deficits influence the stock price only in the short run. The results of the Variance Decomposition show that stock price movement in the long run is mostly explained by shocks of fiscal deficits. The study implies that the government must adopt appropriate macroeconomic policies to reduce budget deficit, which will result in stock market growth and in turn will lead to the financial development of the country.

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Section: Ardl Bounds Testsupporting

confidence: 87%

Section: Literature Reviewmentioning

confidence: 99%

Section: Model Specification and Datamentioning

confidence: 99%

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Fiscal Deficits and Stock Prices in India: Empirical Evidence

Joshi

Giri

2015

IJFS

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“…Interest rates are influenced contemporaneously by the global demand shock, the public expenditure shock (i.e. we allow for contemporaneous crowing out effects), the money supply shock (Sims and Zha, 2006a,b;Van Aarle et al, 2003;Kim and Roubini, 2000;Elbourne, 2008) and the stock market shock (Bjornland and Leitemo, 2009). Finally, stock market returns are influenced contemporaneously by all variables (Bjornland, 2008).…”

Section: Methodsmentioning

confidence: 99%

“…Afonso and Sousa (2011), as well as, Van Aarle et al (2003) emphasise the importance of integrating monetary and fiscal policy analysis into one framework in which the interactions and effects of both can be analysed. This is the main aim and contribution of this paper.…”

Section: Fiscal and Monetary Policy Interactionsmentioning

confidence: 99%

Stock market response to monetary and fiscal policy shocks: Multi-country evidence

2013

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A Structural VAR model is employed to investigate the effects of monetary and fiscal policy shocks on stock market performance in Germany, UK and the US. A significant number of past studies have concentrated their attention on the relationship between monetary policy and stock market performance, yet only few on the effects of fiscal policy on stock markets. Even more we know little, if any, on the effects of fiscal and monetary policy on stock market performance when the two policies interact. This study aims to fill this void. Our results show that both fiscal and monetary policies influence the stock market, via either direct or indirect channels. More importantly, we find evidence that the interaction between the two policies is very important in explaining stock market developments. Thus, investors and analysts in their effort to understand the relationship between macroeconomic policies and stock market performance should consider fiscal and monetary in tandem rather than in isolation.JEL: C32, G15, E44, E52, E62, H50

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References

2016

The Incomplete Currency: The Future of the Euro and Solutions for the Eurozone

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Monetary and fiscal policy transmission in the Euro-area: evidence from a structural VAR analysis

Cited by 59 publications

References 16 publications

Fiscal Deficits and Stock Prices in India: Empirical Evidence

Fiscal Deficits and Stock Prices in India: Empirical Evidence

Stock market response to monetary and fiscal policy shocks: Multi-country evidence

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