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Stock market development and real economic activity in Peru

Author

Listed:
  • Erick Lahura

    (Central Reserve Bank of Peru
    Pontifical Catholic University of Peru)

  • Marco Vega

    (Central Reserve Bank of Peru
    Pontifical Catholic University of Peru)

Abstract

We explore the causal effect of stock market development on real economic activity in Peru by setting up a simple growth model that underpins long-run identifying restrictions for vector autoregressive models. This allows us to identify stock market shocks and to uncover the dynamic response of real output per capita. Using annual time series data for the period 1965–2013, we find that stock market shocks have had a short-run causal effect on real GDP per capita only after 1991, a result that is consistent with standard Granger causality tests; however, the contribution of stock market shocks to output growth dynamics has been small. Thus, policy actions aimed at further developing the Peruvian stock market may have a positive impact on the dynamics of economic growth.

Suggested Citation

  • Erick Lahura & Marco Vega, 2017. "Stock market development and real economic activity in Peru," Empirical Economics, Springer, vol. 53(3), pages 1011-1038, November.
    • Handle: RePEc:spr:empeco:v:53:y:2017:i:3:d:10.1007_s00181-016-1149-6
    DOI: 10.1007/s00181-016-1149-6
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    More about this item

    Keywords

    Stock market development; Output growth; VAR; Long-run restrictions;
    All these keywords.

    JEL classification:

    • E23 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Production
    • G1 - Financial Economics - - General Financial Markets

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