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Stock market, capital flow and output: some analytical and policy perspectives

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  • Rilina Basu
  • Ranjanendra Narayan Nag

Abstract

The article will theoretically examine how financial opening up can influence the real sector under alternative exchange rate regimes. We will show that private capital flows can produce favourable macroeconomic outcomes through an adjustment in stock market valuation and wealth effect induced by a change in asset prices. What we choose for analytical purpose is an effective demand framework, which can apply to a large class of emerging market economies.

Suggested Citation

  • Rilina Basu & Ranjanendra Narayan Nag, 2011. "Stock market, capital flow and output: some analytical and policy perspectives," Macroeconomics and Finance in Emerging Market Economies, Taylor & Francis Journals, vol. 4(1), pages 85-99.
  • Handle: RePEc:taf:macfem:v:4:y:2011:i:1:p:85-99 DOI: 10.1080/17520843.2010.532145
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    References listed on IDEAS

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    1. Engle, Robert F. & Kroner, Kenneth F., 1995. "Multivariate Simultaneous Generalized ARCH," Econometric Theory, Cambridge University Press, vol. 11(01), pages 122-150, February.
    2. Guonan Ma & Corrinne Ho & Robert N McCauley, 2004. "The markets for non-deliverable forwards in Asian currencies," BIS Quarterly Review, Bank for International Settlements, June.
    3. Hideki Izawa, 2008. "An Empirical Test of the Efficiency Hypothesis on the Renminbi NDF in Hong Kong Market," Kobe Economic & Business Review, Research Institute for Economics & Business Administration, Kobe University, vol. 52, pages 1-6, February.
    4. Colavecchio, Roberta & Funke, Michael, 2008. "Volatility transmissions between renminbi and Asia-Pacific on-shore and off-shore U.S. dollar futures," China Economic Review, Elsevier, vol. 19(4), pages 635-648, December.
    5. Park, Jinwoo, 2001. "Information flows between non-deliverable forward (NDF) and spot markets: Evidence from Korean currency," Pacific-Basin Finance Journal, Elsevier, pages 363-377.
    6. Sangita Misra & Harendra Behera, 2007. "Non Deliverable Foreign Exchange Forward Market: An Overview," Working Papers id:1259, eSocialSciences.
    7. John Cairns & Corrinne Ho & Robert McCauley, 2007. "Exchange rates and global volatility: implications for Asia-Pacific currencies," BIS Quarterly Review, Bank for International Settlements, March.
    8. Patrick C. Higgins & Owen F. Humpage, 2005. "Nondeliverable forwards: can we tell where the renminbi is headed?," Economic Commentary, Federal Reserve Bank of Cleveland, issue Sep.
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