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A Multivariate Regime Switching Approach To The Relation Between The Stock Market, The Interest Rate And Output

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  • ANGELOS KANAS

    (Department of Economics, University of Crete, Gallos Campus, 74100 Rethymno, Greece;
    IACM, FORTH, Crete, Greece)

Abstract

This paper presents empirical evidence that the relation between stock returns, real activity and interest rates for the US is regime dependent. Fixed exchange rates, and interest rate targeting are associated with a regime in which the joint behavior of these three variables is characterized by low volatility, whilst monetary aggregates targeting is associated with a high volatility regime. Both the contemporaneous and the dynamic relations change across regimes. Regime-dependent dynamic effects arise from interest rates to real activity, from stock returns to real activity and interest rates, and from real activity to interest rates. Dynamic impulse responses also vary across regimes.

Suggested Citation

  • Angelos Kanas, 2008. "A Multivariate Regime Switching Approach To The Relation Between The Stock Market, The Interest Rate And Output," International Journal of Theoretical and Applied Finance (IJTAF), World Scientific Publishing Co. Pte. Ltd., vol. 11(07), pages 657-671.
    • Handle: RePEc:wsi:ijtafx:v:11:y:2008:i:07:n:s021902490800497x
    DOI: 10.1142/S021902490800497X
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    References listed on IDEAS

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    1. Krolzig, H., 1996. "Statistical Analysis of Cointegrated VAR Processes with Markovian Regime Shifts," SFB 373 Discussion Papers 1996,25, Humboldt University of Berlin, Interdisciplinary Research Project 373: Quantification and Simulation of Economic Processes.
    2. Chang-Jin Kim & Charles R. Nelson, 1999. "State-Space Models with Regime Switching: Classical and Gibbs-Sampling Approaches with Applications," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262112388, December.
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    Cited by:

    1. Bradrania, Reza & Pirayesh Neghab, Davood, 2021. "State-dependent asset allocation using neural networks," MPRA Paper 115254, University Library of Munich, Germany.
    2. Reza Bradrania & Davood Pirayesh Neghab, 2022. "State-dependent Asset Allocation Using Neural Networks," Papers 2211.00871, arXiv.org.

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