This paper investigates the nature of the causal relationships among stock prices and effective exchange rates in four old EU member countries (Austria, France, Germany, and the UK), four new EU member countries (Czech Republic, Hungary, Poland, and Slovakia), and in the United States. Both the long- and short-term causalities between these variables are explored using monthly data. The paper also endeavors to answer the question of whether the linkages between the analyzed economic variables are of similar intensity and direction in old and new EU member countries, and whether or how relationships have changed. The results show much stronger causality in countries with developed capital and foreign-exchange markets (i.e., old EU member countries and the United States). Evidence also suggests more powerful long- and short-term causal relations during the 1993-2003 period than during 1970-92. Causalities seem to be predominantly unidirectional, with the direction running from stock prices to exchange rates. Finally, we detected strong relations when applying the real effective exchange rate than the nominal effective exchange rate.
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Paper provided by University Library of Munich, Germany in its series MPRA Paper with number
7297.
Length: Date of creation: 2004 Date of revision: Publication status: Published in Finance a úvěr - Czech Journal of Economics and Finance 3-4.55(2005): pp. 141-161 Handle: RePEc:pra:mprapa:7297
Find related papers by JEL classification: C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions G15 - Financial Economics - - General Financial Markets - - - International Financial Markets
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