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BFuP Nr. 4 vom Seite 367

The causal link between Polish stock market and key macroeconomic aggregates

Von Prof. Dr. hab. Henryk Gurgul und Mgr. Łukasz Lach, Krakau

This paper with the application of linear, nonlinear and long-run Granger causality tests, examines the causal links between the main Polish market price index (WIG) of the Warsaw Stock Exchange and four macroeconomic aggregates, namely, the value of sold industrial production, the unemployment rate, the interest rate and the rate of inflation using monthly data for the period from January 1998 to June 2008. We found a bidirectional linear causal relationship between the stock market index and sold industrial production and strong evidence of linear and nonlinear Granger causality from changes in the interest rate to fluctuations in the stock market index. Furthermore, all examined macroeconomic variables were found to have a long-run causal influence on the performance of the stock market.

1 Introduction

Since it was easy to observe a process of rapid development of Polish stock market, the research investigating causal links between stock market and the rest of economy has received considerable attention. The latter seems to be even more interesting if we look at the number of various financial sector reforms conducted in Poland in last two decades, the introduction of new economic...