Title: Possible effects of the stock market movements on interest rates, output and inflation: empirical evidence from the emerging markets of Europe

Authors: Oguzhan Ozcelebi

Addresses: Faculty of Economics, Department of Economics, Istanbul University, Center Campus, 34452 Beyazit, Istanbul, Turkey

Abstract: It is important to identify the effects of stock prices on financial and macroeconomic variables when the development of capital markets is concerned. In this study, AB type-SVAR models are employed, whereupon impulse response functions (IRFs) and forecast error variance decompositions (FEVDs) are used for determining the effects of stock prices on money market interest rates, industrial production and inflation expectations and in the emerging markets of Central and Eastern European (CEE) countries. Empirical results stress that central banks in these countries should incorporate the role of capital markets into their monetary policy formulations for maintaining price stability. It is also implied that development of capital markets in these countries should be fostered by the implementation of policies both on micro and macro basis for sustaining economic development.

Keywords: financial intermediaries; financial markets; macroeconomics; stock markets; short-term interest rates; business fluctuations; cycles; inflation expectation; monetary policy; central banks; macroeconomic stability; forecasting; simulation; SVAR model; emerging markets; Central and Eastern Europe; CEE; impulse response functions; IRFs; forecast error variance decompositions; FEVDs; stock prices; industrial production.

DOI: 10.1504/GBER.2014.060185

Global Business and Economics Review, 2014 Vol.16 No.2, pp.179 - 201

Received: 09 Jul 2012
Accepted: 16 Jan 2013
Published online: 16 Jun 2014 *

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