Lead-lag relationship between macroeconomic variables: evidence from Korea

Shin, Claire and Masih, Mansur (2016): Lead-lag relationship between macroeconomic variables: evidence from Korea.

Abstract

This study seeks evidence supporting the existence of theoretical relationships and possible directions of causality between call money rates, exchange rates, industrial production index (IPI) and stock market movements from the perspective of Korea. We apply standard time series techniques including long run structural modelling (LRSM), vector error correction modelling (VECM) and variance decomposition (VDC). Our findings tend to suggest that IPI is the most leading factor among our variables for the long-term, and exchange rates is the most follower. It can be explained since the real economy is expected to lead monetary policy, stock markets and exchange rates in the long run. Findings of this study are meaningful for the investors and policy makers since a very few studies have been carried out examining the causal relationships of the above variables with the above techniques in Korea. This paper may help fill the gap for policy makers, practitioners and investors.

• Item Type: MPRA Paper
• Language: English
• Keywords: Direction of causality, Macroeconomic variables, Stock markets
• Subjects: C - Mathematical and Quantitative Methods > C2 - Single Equation Models ; Single Variables > C22 - Time-Series Models ; Dynamic Quantile Regressions ; Dynamic Treatment Effect Models ; Diffusion Processes; C - Mathematical and Quantitative Methods > C5 - Econometric Modeling > C58 - Financial Econometrics; E - Macroeconomics and Monetary Economics > E4 - Money and Interest Rates > E44 - Financial Markets and the Macroeconomy

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