Breakdowns and revivals: the long-run relationship between the stock market and real economic activity in the G-7 countries

Lyócsa, Štefan and Výrost, Tomáš and Baumöhl, Eduard (2012): Breakdowns and revivals: the long-run relationship between the stock market and real economic activity in the G-7 countries.

Abstract

Using monthly observations of industrial production and stock market indices from January 1961 to May 2012, we analyse the long-run relationship between the stock markets and real economic activity in the G-7 countries. In particular, this analysis uses the Toda and Yamamoto (1995) approach with the leveraged bootstrap methodology that was proposed by Hacker and Hatemi-J (2006). Our results indicate that although the expected long-run relationship holds for most of the G-7 countries, a break in this relationship occurred in the 1980s, followed by a subsequent revival after 2001.

• Item Type: MPRA Paper
• Language: English
• Keywords: real economic activity, stock markets, G-7, long-run relationship
• Subjects: G - Financial Economics > G1 - General Financial Markets > G15 - International Financial Markets; E - Macroeconomics and Monetary Economics > E4 - Money and Interest Rates > E44 - Financial Markets and the Macroeconomy; O - Economic Development, Innovation, Technological Change, and Growth > O5 - Economywide Country Studies > O50 - General

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