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Paper Information

Journal:   IRANIAN JOURNAL OF APPLIED ECONOMICS   fall 2017 , Volume 7 , Number 22 #r00450; Page(s) 11 To 21.

Investigation of Causal Relationship between Economic Growth, Inflation and Stock Market Development in Iran

Author(s):  Gardeshi Razie, GHOLAMI ELHAM*
* School of Management & Economics, Department of Economics, Research & Sicence Branch, Tehran, Iran
Economic growth, inflation and stock market development are considered as three important variables in each economy, which is important to examine their relationship. Hence, the main purpose of this paper is to investigate the dynamic causal relationship between the three variables mentioned in Iran, over the period of 1981 to 2015. For this purpose, Granger causality test is used to find the causal relationship between the variables. Initially, the long-term relationship between the variables has been examined by Johansen-Juselius co-integration test, which results indicate that there is a Long-term equilibrium relationship. Then, the vector error correction model has been used to determine the direction of causality short and long-term. According to the results, the rate of inflation and the stock market development are Granger causality economic growth in the long-term. In the short-term, only there is a two-way causal relationship between economic growth and inflation, while, there is a one-way short-term causal relationship of the stock market development toward the economic growth and the inflation rate.
Keyword(s): Economic Growth,Stock Market Development,Inflation,Granger Causality Test,Vector Error Correction Model
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