Brokers and business cycles: Does financial market volatility cause real fluctuations?
AbstractThis paper elaborates on the link between financial market volatility and real economic activity. Using monthly data for Germany from 1968 to 1998, we specify GARCH models to capture the variability of stock market prices, of the real exchange rate, and of a long-term and of a short-term rate of interest and test for the impact of the conditional variance on the future stance of the business cycle and on the volatility of industrial production. The results of our empirical investigation lead us to reject the hypothesis that financial market volatility causes the cycle or real volatility.
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Bibliographic InfoPaper provided by Kiel Institute for the World Economy in its series Kiel Working Papers with number 899.
Date of creation: 1998
Date of revision:
Uncertainty; GARCH models; forecasting; Granger-non-causality; causality-in-variance;
Find related papers by JEL classification:
- C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
- D8 - Microeconomics - - Information, Knowledge, and Uncertainty
- E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
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