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Interdependence of Industrial Production Index and capital market in Croatia: VAR model

Author

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  • Tomić, Bojan
  • Sesar, Andrijana

Abstract

Industrial production is an important indicator of future trends in each of the economy including the Croatian economy. On the other hand, as a preceding factor of the economy dynamics changes, the equity indices of the capital market can be used. Due to different considerations and interpretations of their mutual initial causation, the paper analyzes the interdependence between the main index Croatian capital market CROBEX and indicators of total industrial production of the Republic of Croatian. Also, in the model was introduced exchange parity euro/kuna as an additional variable rate which is considered to have a significant influence on the competitiveness of the Croatian economy, as well as the capital market. The theoretical premise about the interaction of the foreign exchange rate and capital markets has been considered in the context of the "flow-oriented" and "stock-oriented" model. Aiming to determine the interdependence between aforementioned variables, the analysis was carried out using the vector autoregression model (VAR). The Granger causality test was conducted as part of the VAR model, as well as the decomposition of variance in future periods and the impulse response function of relevant variables. The results of analysis indicate the existence of causality of the exchange rate to the index of industrial production, as well as the existence of causality of the index of industrial production to CROBEX index.

Suggested Citation

  • Tomić, Bojan & Sesar, Andrijana, 2015. "Interdependence of Industrial Production Index and capital market in Croatia: VAR model," MPRA Paper 66816, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:66816
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    File URL: https://mpra.ub.uni-muenchen.de/66816/1/MPRA_paper_66816.pdf
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    References listed on IDEAS

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    Cited by:

    1. Nataša Erjavec & Petar Soriæ & Mirjana Èižmešija, 2016. "Predicting the probability of recession in Croatia: Is economic sentiment the missing link?," Zbornik radova Ekonomskog fakulteta u Rijeci/Proceedings of Rijeka Faculty of Economics, University of Rijeka, Faculty of Economics and Business, vol. 34(2), pages 555-579.

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    More about this item

    Keywords

    VAR model; causality; industrial production; CROBEX; the exchange rate.;
    All these keywords.

    JEL classification:

    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models
    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • G17 - Financial Economics - - General Financial Markets - - - Financial Forecasting and Simulation

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