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The dynamics of economic growth, oil prices, stock market depth, and other macroeconomic variables: Evidence from the G-20 countries

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  • Pradhan, Rudra P.
  • Arvin, Mak B.
  • Ghoshray, Atanu

Abstract

This paper examines the linkages between economic growth, oil prices, depth in the stock market, and three other key macroeconomic indicators: real effective exchange rate, inflation rate, and real rate of interest. We employ a panel vector autoregressive model to test Granger causality for the G-20 countries over the period 1961–2012. A novel approach to this study is that we clearly demarcate the long-run and short-run relations between the economic variables. The results show a robust long-run economic relationship between economic growth, oil prices, stock market depth, real effective exchange rate, inflation rate, and real rate of interest. In the long run, real economic growth is found to respond to any deviation in the long-run equilibrium relationship that is found to exist between the different measures of stock market depth, oil prices, and the other macroeconomic variables. In the short run we find a complex network of causal relationships between the variables. While the empirical evidence of short-run causality is mixed, there is clear evidence that real economic growth responds to various measures of stock market depth, allowing for real oil price movements and changes in the real effective exchange rate, inflation rate, and real rate of interest.

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  • Pradhan, Rudra P. & Arvin, Mak B. & Ghoshray, Atanu, 2015. "The dynamics of economic growth, oil prices, stock market depth, and other macroeconomic variables: Evidence from the G-20 countries," International Review of Financial Analysis, Elsevier, vol. 39(C), pages 84-95.
  • Handle: RePEc:eee:finana:v:39:y:2015:i:c:p:84-95
    DOI: 10.1016/j.irfa.2015.03.006
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    Cited by:

    1. Yilmaz BAYAR & Huseyin KARAMELIKLI, 2015. "Impact Of Oil And Natural Gas Prices On The Turkish Foreign Trade Balance: Unit Root And Cointegration Tests With Structural Breaks," Romanian Economic Business Review, Romanian-American University, vol. 10(3), pages 91-104, September.
    2. Nikolaos Sariannidis & Grigoris Giannarakis & Eleni Zafeiriou & Ioannis Billias, 2016. "The Effect of Crude Oil Price Moments on Socially Responsible Firms in Eurozone," International Journal of Energy Economics and Policy, Econjournals, vol. 6(2), pages 356-363.
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    More about this item

    Keywords

    Oil prices; Stock market depth; Economic growth; Other macroeconomic variables; Panel VAR; Granger causality; G-20 countries;

    JEL classification:

    • C33 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Models with Panel Data; Spatio-temporal Models
    • G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)
    • O49 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - Other
    • Q43 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Energy and the Macroeconomy

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