Time-Varying Effects of Changes in the Interest Rate and the RMB Exchange Rate on the Stock Market of China: Evidence from the Long-Memory TVP-VAR Model
AbstractThis paper extends the TVP-VAR (time-varying parameter structural vector autoregression) (Primiceri 2005) and TVP-R (time-varying parameter autoregression) (Nakajima 2011) to the long-memory models, and uses them to investigate the time-varying effects of changes in the interest rate and renminbi (RMB) exchange rate on the Chinese stock market from July 22, 2005, to January 13, 2012. As shown in the results, the short-term effect on stock returns of changes in the RMB exchange rate is sensitive to the reform of the increasing flexibility of the RMB exchange rate. The short-term effect of interest rate changes on stock returns may be sensitive to the 2008 financial crisis. In the long term, the impact of interest rate changes on stock returns is very limited, whereas appreciation of the RMB is not an unfavorable factor for the Chinese stock market.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoArticle provided by M.E. Sharpe, Inc. in its journal Emerging Markets Finance and Trade.
Volume (Year): 48 (2012)
Issue (Month): 0 (July)
Contact details of provider:
Web page: http://mesharpe.metapress.com/link.asp?target=journal&id=111024
impulse response; long memory; long-term equilibrium relationship; time-varying; TVP-VAR;
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Gary Koop & Dimitris Korobilis, 2011.
"Forecasting Inflation Using Dynamic Model Averaging,"
1119, University of Strathclyde Business School, Department of Economics.
- Gary Koop & Dimitris Korobilis, 2012. "Forecasting Inflation Using Dynamic Model Averaging," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 53(3), pages 867-886, 08.
- Gary Koop & Dimitris Korobilis, 2009. "Forecasting Inflation Using Dynamic Model Averaging," Working Paper Series 34_09, The Rimini Centre for Economic Analysis, revised Jan 2009.
- Koop, Gary & Korobilis, Dimitris, 2011. "Forecasting Inflation Using Dynamic Model Averaging," SIRE Discussion Papers 2011-40, Scottish Institute for Research in Economics (SIRE).
- Koop, Gary & Korobilis, Dimitris, 2010. "Forecasting Inflation Using Dynamic Model Averaging," SIRE Discussion Papers 2010-113, Scottish Institute for Research in Economics (SIRE).
- Lim, Kian-Ping, 2007. "Ranking market efficiency for stock markets: A nonlinear perspective," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 376(C), pages 445-454.
- Ning, Cathy, 2010. "Dependence structure between the equity market and the foreign exchange market-A copula approach," Journal of International Money and Finance, Elsevier, vol. 29(5), pages 743-759, September.
- Akella, Srinivas R & Chen, Su-Jane, 1990. "Interest Rate Sensitivity of Bank Stock Returns: Specification Effects and Structural Changes," Journal of Financial Research, Southern Finance Association & Southwestern Finance Association, vol. 13(2), pages 147-54, Summer.
- Alexander Rathke & Samad Sarferaz, 2010. "Malthus was right: new evidence from a time-varying VAR," IEW - Working Papers 477, Institute for Empirical Research in Economics - University of Zurich.
- Mehmet Balcilar, 2004. "Persistence in Inflation: Does Aggregation Cause Long Memory?," Emerging Markets Finance and Trade, M.E. Sharpe, Inc., vol. 40(5), pages 25-56, September.
- Ausloos, M., 2000. "Statistical physics in foreign exchange currency and stock markets," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 285(1), pages 48-65.
- Kim, Ki-ho, 2003. "Dollar exchange rate and stock price: evidence from multivariate cointegration and error correction model," Review of Financial Economics, Elsevier, vol. 12(3), pages 301-313.
- Chien-Chung Nieh & Hwey-Yun Yau, 2010. "The Impact of Renminbi Appreciation on Stock Prices in China," Emerging Markets Finance and Trade, M.E. Sharpe, Inc., vol. 46(1), pages 16-26, January.
- Mehmet Balcilar, 2003. "Multifractality of the Istanbul and Moscow Stock Market Returns," Emerging Markets Finance and Trade, M.E. Sharpe, Inc., vol. 39(2), pages 5-46, March.
- Granger, Clive W.J. & Huang, Bwo-Nung & Yang, Chin W., 1998.
"A Bivariate Causality between Stock Prices and Exchange Rates: Evidence from Recent Asia Flu,"
University of California at San Diego, Economics Working Paper Series
qt9bk607p6, Department of Economics, UC San Diego.
- Granger, Clive W. J. & Huangb, Bwo-Nung & Yang, Chin-Wei, 2000. "A bivariate causality between stock prices and exchange rates: evidence from recent Asianflu," The Quarterly Review of Economics and Finance, Elsevier, vol. 40(3), pages 337-354.
- Nicolini, Esteban A., 2007.
"Was Malthus right? A VAR analysis of economic and demographic interactions in pre-industrial England,"
European Review of Economic History,
Cambridge University Press, vol. 11(01), pages 99-121, April.
- Esteban A. Nicolini, 2006. "Was Malthus Right? A Var Analysis Of Economic And Demographic Interactions In Pre-Industrial England," Working Papers in Economic History wh060601, Universidad Carlos III, Departamento de Historia Económica e Instituciones.
- Yau, Hwey-Yun & Nieh, Chien-Chung, 2006. "Interrelationships among stock prices of Taiwan and Japan and NTD/Yen exchange rate," Journal of Asian Economics, Elsevier, vol. 17(3), pages 535-552, June.
- Hamrita, Mohamed Essaied & Ben Abdallah, Nidhal & Ben Ammou, Samir, 2009. "The Multi-Scale Interaction between Interest Rate, Exchange Rate and Stock Price," MPRA Paper 18424, University Library of Munich, Germany.
- Wang, Yudong & Liu, Li & Gu, Rongbao, 2009. "Analysis of efficiency for Shenzhen stock market based on multifractal detrended fluctuation analysis," International Review of Financial Analysis, Elsevier, vol. 18(5), pages 271-276, December.
- Mukherjee, Tarun K & Naka, Atsuyuki, 1995. "Dynamic Relations between Macroeconomic Variables and the Japanese Stock Market: An Application of a Vector Error Correction Model," Journal of Financial Research, Southern Finance Association & Southwestern Finance Association, vol. 18(2), pages 223-37, Summer.
- Jouchi Nakajima, 2011. "Time-Varying Parameter VAR Model with Stochastic Volatility: An Overview of Methodology and Empirical Applications," IMES Discussion Paper Series 11-E-09, Institute for Monetary and Economic Studies, Bank of Japan.
- Wang, Yudong & Wu, Chongfeng & Pan, Zhiyuan, 2011. "Multifractal detrending moving average analysis on the US Dollar exchange rates," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 390(20), pages 3512-3523.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Chris Nguyen).
If references are entirely missing, you can add them using this form.