Economic Growth and Stock Market Liquidity Shocks: Bayesian VAR Approach

Document Type : Scientific-research

Authors

1 Assistant Professor of Economics, Department of Humanities, Bozorgmehr University Of Qaenat, Qaen, Iran

2 PhD in economics and lecturer at Golestan University

Abstract

The aim of this study is to examine the link between liquidity shocks in the Iranian stock market and real GDP growth. We fit a Bayesian Vector Autoregression model with data from 1388Q1 to 1398Q4. In this framework, after extracting the liquidity index of the stock market, GARCH model has been used to measure liquidity shock. The result of the granger causality test shows that there is a one-way causal flow from the stock market liquidity shock to economic growth. The results of the Impulse response function of the GDP growth show that the economic growth reaction to a shock in the stock market liquidity shock is positive, so that its effect increases after four seasons. Also, the finding from the analysis of economic growth variance show that in the first period, the variance of this variable is fully explained by the variable itself, but over time its importance decreases and the importance of other variables increases. The findings show that after eight seasons, the stock market liquidity shock accounted for nearly 3.3 percent of GDP growth volatility. In addition, interest rates, inflation rates and exchange rates, 6, 3.5 and 2.5 percent, respectively, have contributed to the fluctuations in Iran's economic growth.
 

Keywords

References

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Journal of Iranian Economic Issues
Volume 8, Issue 1
June 2021
Pages 251-274

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History

  • Receive Date: 02 October 2020
  • Revise Date: 25 November 2020
  • Accept Date: 05 January 2021

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