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Evaluation of the Effect of Asset Market Fluctuations on the Financial Crisis of the Economy: An Application of Markov Switching

Author

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  • Neda Assadollahzadehjafari
  • Bahar Hafezi
  • Seyed Mohsen Khalifehsoltani

Abstract

Purpose: The main purpose of this article is the effect of exchange rate fluctuations, oil prices, and stock market index on the financial instability index using the Markov switching rotation mode in 2009-2018 in the form of monthly data. Design/Methodology/Approach: In this research, the Toolbox-Violet wavelet transform model has been used to extract the exchange rate fluctuations, oil prices, and stock market indices. Findings: The results indicated that the effect of exchange rate fluctuations in various regimes and periods is different. Exchange rate fluctuations in the high regime of the financial instability index and the short term have a different effect compared to other periods. Oil price fluctuations have a positive and significant effect in the medium and long term, regardless of the financial instability regime, which will be more substantial in the long run. Moreover, stock market fluctuations have a negative and significant effect only in the short term when the financial instability index in the regime is low. Practical implications: According to results of this article, fluctuations have different effects depending on the period and the level of financial instability. Therefore, the management of foreign exchange and stock markets in the country should be performed based on the level of financial instability and the period of fluctuations. Originality/value: This research provides a new perspective on understanding the impact and transmission or fluctuations between markets and their impact on each other in recent decades.

Suggested Citation

  • Neda Assadollahzadehjafari & Bahar Hafezi & Seyed Mohsen Khalifehsoltani, 2021. "Evaluation of the Effect of Asset Market Fluctuations on the Financial Crisis of the Economy: An Application of Markov Switching," International Journal of Economics & Business Administration (IJEBA), International Journal of Economics & Business Administration (IJEBA), vol. 0(3), pages 191-203.
    • Handle: RePEc:ers:ijebaa:v:ix:y:2021:i:3:p:191-203
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    References listed on IDEAS

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    More about this item

    Keywords

    Exchange rate fluctuations; oil price fluctuations; stock fluctuations; Markov rotation model.;
    All these keywords.

    JEL classification:

    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • G01 - Financial Economics - - General - - - Financial Crises

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