Stock Prices and Exchange Rates in the EU and the United States: Evidence on their Mutual Interactions
Year: 2005 Volume: 55 Issue: 3 -4 Pages: 141-161
Abstract: 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.
JEL classification: C32, G15
Keywords: stock prices; cointegration; vector error-correction; exchange rates; Granger causality
RePEc: http://ideas.repec.org/a/fau/fauart/v55y2005i3-4p141-161.html
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