Exchange Rate Movements and International Interdependence of Stock Markets

Bhandari, Jagdeep S.; Genberg, Hans Article Exchange Rate Movements and International Interdependence of Stock Markets Kredit und Kapital Provided in Cooperation with: Duncker & Humblot, Berlin Suggested Citation: Bhandari, Jagdeep S.; Genberg, Hans (1990) : Exchange Rate Movements and International Interdependence of Stock Markets, Kredit und Kapital, ISSN 0023-4591, Duncker & Humblot, Berlin, Vol. 23, Iss. 4, pp. 496-532, https://doi.org/10.3790/ccm.23.4.496 This Version is available at: https://hdl.handle.net/10419/293183 Standard-Nutzungsbedingungen: Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden. Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen. Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. Terms of use: Documents in EconStor may be saved and copied for your personal and scholarly purposes. You are not to copy documents for public or commercial purposes, to exhibit the documents publicly, to make them publicly available on the internet, or to distribute or otherwise use the documents in public. If the documents have been made available under an Open Content Licence (especially Creative Commons Licences), you may exercise further usage rights as specified in the indicated licence. https://creativecommons.org/licenses/by/4.0/ Exchange Rate Movements and International Interdependence of Stock Markets By Jagdeep S. Bhandari, Washington and Hans Genberg, Geneva* I. Introduction Close international integration of financial markets is widely regarded as a major contributing factor in the economic interdependence of countries. In particular, shocks in individual countries are thought to be rapidly transmitted to other economies through changes in interest rates and exchange rates. Disturbances of a worldwide nature are incorporated immediately into asset prices in all financial centers, and economic activity in the countries of a financially integrated area can be influenced almost simultaneously as firms and households react to the signals incorporated in these asset prices.1 Theoretical and especially empirical research on these phenomena has centered on markets for financial assets. Potentially, equally important transmission effects could occur through markets for claims on real assets. Although perhaps less internationally integrated, national equity markets are believed to process information efficiently and thereby to take into account relevant external developments in pricing (even nontraded) assets. Prices of these assets may in turn have important influences on domestic economic activity through firms' investment decisions or through household spending. * The authors are grateful to Morris Goldstein and Mohsin Kahn, to participants in seminars at the Research Department of the International Monetary Fund, the Graduate Institute of International Studies, the Konstanz Seminar on Monetary Theory and Policy, as well as to an anonymous referee for helpful comments on an earlier draft of this paper. All remaining errors are the sole responsibility of the authors. This paper was begun while Hans Genberg was a Consultant with the Research Department of the International Monetary Fund. He is currently Professor of Economics at the Graduate Institute of International Studies at Geneva, Switzerland. Jagdeep S. Bhandari is an Economist in the European Department of the IMF and was formerly with the Research Department. He is also Professor of Economics at West Virginia University. 1 Indeed, interest parity conditions are central to the transmission mechanisms in the majority of recent open economy macroeconomic models. OPEN ACCESS | Licensed under CC BY 4.0 | https://creativecommons.org/about/cclicenses/ DOI https://doi.org/10.3790/ccm.23.4.496 | Generated on 2023-01-16 12:59:52 Exchange Rate Movements and International Interdependence of Stock Markets 497 It thus seems of interest to incorporate equity prices into models of open economies and to study empirically, as well as theoretically, how national stock markets are linked and what role they play in the international transmission of shocks. The goal of this paper is to provide a contribution to such an analysis.2 Consider Charts 1 and 2 which show the movements of nominal and real stock prices, respectively, in Germany, Japan, and the United States since 1974.3 The following questions come to mind: (1) Is it possible to detect common trends in these series, and if so, what factors could explain these trends? (2) Do the series exhibit stable short- to medium-term relationships, and if so, are these due to common shocks or to the transmission of nationspecific shocks? (3) In the latter case, is one country dominant in the sense that its stock price changes cause movements elsewhere?, and (4) Is it true, as the Charts suggest, that stock prices have moved quite closely together in spite of the very large exchange rate changes that have taken place during the same period, and if so, why? Charts 3 and 4 illustrate some additional puzzles. They show differences in real stock prices between Germany and the United States (Chart 3) and between Japan and the United States (Chart 4), together with the corresponding real exchange rates. There does not appear to be any stable relationship between relative stock prices and real exchange rates. In some periods one can detect strong positive co-movements, whereas in others, there appears to be a negative relationship between the two variables. Can these casual observations be corroborated with more formal statistical methods, and if so, how can the changing pattern of correlations over time be explained? 2 Theoretical work incorporating stock market effects in open economy macroeconomic models includes Gavin (1986) and Murphy (1988). The finance literature has of course been concerned with linkages between national stock markets in studies of the benefits of international portfolio diversification. See, for example, the comprehensive survey by Adler and Dumas (1983), which also contains references of empirical evidence on correlation between returns in various markets. Andresen (1988) presents evidence suggesting that common international factors can explain a significant portion of the variation in national stock price indexes and, furthermore, that the same international factors are leading indicators of national business cycles. See also Schwert (1988) for an empirical investigation of stock market volatility. 3 Real stock prices are defined as the nominal price deflated by the domestic price of goods. OPEN ACCESS | Licensed under CC BY 4.0 | https://creativecommons.org/about/cclicenses/ DOI https://doi.org/10.3790/ccm.23.4.496 | Generated on 2023-01-16 12:59:52 498 Jagdeep S. Bhandari and Hans Genberg CHART 1 NOMINAL STOCK PRICES CHART 2 REAL STOCK PRICES The remainder of the paper addresses some of these questions. In Section II, formal statistical methods are used to establish a number of empirical regularities that characterize the relationships that exist among national stock price indices and exchange rates. In Section III we present a theoreti- OPEN ACCESS | Licensed under CC BY 4.0 | https://creativecommons.org/about/cclicenses/ DOI https://doi.org/10.3790/ccm.23.4.496 | Generated on 2023-01-16 12:59:52 Exchange Rate Movements and International Interdependence of Stock Markets 499 AND THE REAL EXCHANGE RATES CHART 3 CHART 4 cal model that yields predictions about these same relationships. Section IV asks how well the theoretical model can account for the identified empirical regularities, and Section V identifies some areas for further theoretical and empirical research suggested by our analysis. OPEN ACCESS | Licensed under CC BY 4.0 | https://creativecommons.org/about/cclicenses/ DOI https://doi.org/10.3790/ccm.23.4.496 | Generated on 2023-01-16 12:59:52 500 Jagdeep S. Bhandari and Hans Genberg II. Empirical Regularities To motivate the theoretical analysis that follows, a number of hypotheses involving the relationship between stock prices, exchange rates, and output prices were examined. Specifically, we wanted to determine whether: (1) Some form of Purchasing Power Parity (PPP) holds when the prices involved are national equity prices rather than goods prices. (2) Real equity prices are related across countries. (3) Any country appears to be dominant in the sense that movements in equity prices there „cause" movements in equity prices elsewhere. (4) Real equity prices and real exchange rates are correlated, and if so, how? Our data sample consisted of monthly observations from 1973, 6 to 1988, 2 on the following variables for seven major industrial countries:4 Ps: an index of the nominal price of equity in the domestic market (expressed in domestic currency); P: an index of the nominal price of goods in the domestic market (expressed in domestic currency and proxied by the consumer price index); sli\ the spot exchange rate between currencies i and j (units of i per unit of j). Three additional variables were constructed: q = PVP: the real price of equity in terms of the domestic price of goods; etj = stj Pj/Pl: the real exchange rate between countries i and j. Unit root tests on the logarithms of these variables revealed the presence of non-stationarity in all cases.5 First differences of the variables were therefore used in most of the subsequent empirical analysis. 4 Canada, France, the Federal Republic of Germany, Italy, Japan, the United Kingdom, and the United States. Data sources were DRI for all stock price indices and IFS for all other series. 5 See the Appendix for details. OPEN ACCESS | Licensed under CC BY 4.0 | https://creativecommons.org/about/cclicenses/ DOI https://doi.org/10.3790/ccm.23.4.496 | Generated on 2023-01-16 12:59:52 Exchange Rate Movements and International Interdependence of Stock Markets 501 1. The Relationship Between Equity Prices Across Countries a) Does Purchasing Power Parity Hold? Under conditions similar to those that would make PPP hold for prices of goods, one should find that it holds also for nominal equity prices. If equity prices reflect discounted values of future returns to capital, it ought to be the case that exchange rate changes and nominal stock price changes just offset each other when there are no significant relative price changes of goods and factor services between countries, i.e., when the real exchange rate is constant. In order to investigate the validity of the PPP hypothesis applied to stock prices, two related tests were performed. The first was a test for stationarity of the „real equity exchange rate", defined by (A) esij = sijPsj/Psi Based on results: described in Section 1 of the Appendix, we could not reject the hypothesis that the real equity exchange rates in our sample follow random walks. This in turn means that there is no tendency for these real rates to converge to a constant, as predicted by the PPP hypothesis. The second test of the PPP hypothesis was a test of co-integration between Psl, Psj, and slj. Specifically, we investigated the hypothesis that the estimated residual in the regression (B) In Psi = a + Pi In Psi + p2lnsij + u* is a stationary time series.6 Fifteen pairs of countries defined by the following i, j combinations were used. j = US i = (Germany, Japan, UK, Canada, France, Italy) j = Germany i = (Japan, UK, Canada, France, Italy) j = Japan i = (UK, Canada, France, Italy) Table 1 reveals that the hypothesis of co-integration could be rejected in all but two cases, (US, Japan) and (Japan, UK), 7 suggesting that in general there is no stable long-run relationship between nominal stock prices and 6 In co-integration tests, equation (B) is referred to as the co-integration regression and is interpreted as the long-run relationship between the variables provided that the residual in the equation is stationary. 7 In the first of these, the point estimate of the coefficient /32 was — .47 as opposed to the theoretical value of + 1 under the null hypothesis of PPP. OPEN ACCESS | Licensed under CC BY 4.0 | https://creativecommons.org/about/cclicenses/ DOI https://doi.org/10.3790/ccm.23.4.496 | Generated on 2023-01-16 12:59:52 502 Jagdeep S. Bhandari and Hans Genberg exchange rates. As we shall see shortly, however, this does not mean that stock price movements in different countries are unrelated. What it does indicate is that relative stock price movements do not simply offset nominal exchange rate changes. Estimates of the co-integration regressions, equation (B), provided additional clues about the relationship between national equity markets. Whereas the coefficient Pi is often in the neighborhood of 1, the estimates of p2 are sometimes positive and sometimes negative, depending on which country pair was examined.8 This seems to suggest that nominal stock prices move together independently of nominal exchange rate changes, a hypothesis that will be examined in the next subsection. Table 1 : Tests of Co-Integration Between Nominal Stock Prices and Nominal Exchange Rates (Co-integration regression: In Psi = a + Pi In P\j + p2 In Sy + ut) Country j Country i DF ADF ßi ß2 United States Germany -2.33 Japan - 3.78 United Kingdom - 2.66 Canada -2.16 France - 2.93 Italy - 2.60 Germany Japan - 1.23 United Kingdom - 2.08 Canada - 1.58 France - 2.64 Italy - 1.84 Japan United Kingdom -3.01 Canada - 1.87 France - 2.43 Italy - 1.71 (Sample: 1973, 6 - 1988, 2) -2.48 1.04 (0.03) 0.03 (0.07) -3.83 1.42 (0.04) - 0.47 (0.07) -2.25 1.60 (0.05) 0.48 (0.09) - 1.92 0.71 (0.06) 1.54 (0.17) -2.51 1.60 (0.05) - 0.83 (0.06) - 1.94 2.13 (0.10) 0.11 (0.09) - 1.72 0.84 (0.07) - 1.41 (0.17) -2.40 1.01 (0.08) 1.11 (0.16) - 1.86 0.67 (0.06) 0.63 (0.10) -2.64 1.02 (0.06) 0.67 (0.11) - 1.77 1.41 (0.12) 0.55 (0.14) - 3.48 0.77 (0.05) 0.56 (0.10) - 1.56 0.58 (0.05) 0.19 (0.10) -2.62 1.08 (0.06) - 0.29 (0.10) - 1.85 1.56 (0.09) - 0.32 (0.11) Notes: DF stands for the t statistic for </> in the Dickey-Fuller regression Aut = <put~ 1 + et. ADF stands for the t statistic of 0 in the Augmented Dickey-Fuller regression 4 Aut = <put-i + 2 bk Aut-k + £t. k = 1 Critical values, at the 10 percent level, for DF and ADF are 3.03 and 2.84, respectively. See Engle and Granger (1987), Table II. Numbers in parentheses are standard errors. 8 Given the non-stationarity of the residual in the regression one must be careful in drawing formal inferences from the estimated coefficients. OPEN ACCESS | Licensed under CC BY 4.0 | https://creativecommons.org/about/cclicenses/ DOI https://doi.org/10.3790/ccm.23.4.496 | Generated on 2023-01-16 12:59:52 Exchange Rate Movements and International Interdependence of Stock Markets 503 b) Nominal Stock Prices Move Together Independently of Nominal Exchange Rate Changes Since stock prices and exchange rates did not appear to be co-integrated, and since individually they follow random walks, one might argue that regressions like equation (B) should be estimated on first differences of the variables. Doing so yields the following three conclusions (see Table 2): (1) There are significant common movements of nominal stock prices across national markets. The coefficient on Psi is significantly greater than zero for every country pairing represented in Table 2. (2) Changes in nominal exchange rates are not systematically related to changes in stock prices. The corresponding coefficient (a2) is most often not significantly different from zero. Furthermore, while the PPP hypothesis implies that this coefficient should be equal to + 1, Table 2 often contains negative point estimates. (3) The previous conclusions do not seem to be the result of the October 1987 crash since they hold for samples excluding that episode as well. While it is true that the fit of the equation deteriorates when 1987 is excluded from the sample, it is still the case that the coefficient on country j's stock price change is significantly greater than zero at conventional levels. No „improvement" is noticeable regarding the coefficient on the nominal exchange rate. c) Real Stock Prices Move Together The same tests were applied to real stock prices, q, and real exchange rates, e. The results confirmed previous conclusions; specifically, (i) the level of real stock prices does not seem to be cointegrated in general across countries, and (ii) there is a strong positive relationship between changes in stock prices in different countries. Detailed results are presented in Tables 3 and 4. While the number of cases in which co-integration cannot be rejected increases somewhat relative to the tests with nominal stock prices and exchange rates,9 the majority of the comparisons in Table 3 still indicate an absence of such a relationship between real stock prices. As before, the cointegration regressions suggest a one-for-one relationship between the stock price series but no systematic association involving the real exchange rates. 9 Specifically, the number of cases increased from two pairs of countries to six (three) based on the ADF (DF) statistic and a 10% significance level. It is interesting to note that co-integration could be rejected in all but one case when one of the two countries was the United States. OPEN ACCESS | Licensed under CC BY 4.0 | https://creativecommons.org/about/cclicenses/ DOI https://doi.org/10.3790/ccm.23.4.496 | Generated on 2023-01-16 12:59:52 510 Jagdeep S. Bhandari and Hans Genberg (3) Real stock prices are positively correlated across countries. (4) The correlation between relative real stock prices and real exchange rates varies over time between significantly positive and significantly negative values. III. The Model This section constructs and analyzes a two-country model which is capable of generating patterns of adjustment in real and nominal stock prices, exchange rates and output levels in response to various disturbances occuring in either or both countries.11 1. The Analytical Framework The hypothetical world of this model consists of two countries. Each country produces a single final commodity. Both goods are consumed in each country. Each country supplies bonds denominated in its own currency to the world market. These assets are assumed to be perfect substitutes on an uncovered basis so that effectively there is a single internationally traded bond. Domestic residents (in each country) may hold domestically issued money, the international bond or shares of the domestic stock market. For purposes of this model, the alternative assumption of permitting equity shares to be internationally traded leads to entirely insubstancial changes.12 There is no currency substitution and all considerations of intermediate products, capital formation, and factor markets are deliberately suppressed. Asset prices including the exchange rate, interest yields, and stock prices adjust instantaneously; however, commodity prices are "sticky" and adjust only over time in response to commodity market disequilibria. The model contains a description of commodity, money and stock markets in each country, a specification of interest arbitrage, arbitrage relationships between stock market returns, and bond yields, along with a statement of 11 The model to be described below can be viewed either as a two-country extension of Gavin (1986), or as a elaboration of existing two-country models such as Bhandari (1982) or Turnovsky (1986), suitably amended to incorporate stock markets in each country. 12 The reason for this is that we do not model differences in risk characteristics between stocks issued in different countries. This in turn implies that given certain conditions the arbitrage relationships which must hold between real and financial assets in the model are unaffected by permitting trade in equity shares. One condition under which this is so is that the share of domestic stocks in the domestic portfolio is equal to the share of domestic goods in the domestic general price index. OPEN ACCESS | Licensed under CC BY 4.0 | https://creativecommons.org/about/cclicenses/ DOI https://doi.org/10.3790/ccm.23.4.496 | Generated on 2023-01-16 12:59:52 Exchange Rate Movements and International Interdependence of Stock Markets 511 price dynamics in each country. All relevant commodity and asset market parameters in each country are identical, i.e., the analysis envisions a world consisting of two parameter-wise identical, symmetric countries. This assumption relating to identical cross-country parameters permits us to solve an otherwise high-order differential equation system by the use of the averages-differences technique suggested by Aoki (1981). Aggregate demand in each country is given definitionally by the sum of consumption plus the net trade balance and government expenditure (ignoring for simplicity, the investment component of expenditure). Thus, domestic income (in natural units) is (1') Y = C + X - (SP*/P)-IM + G where C, X, IM and G respectively denote consumption, exports, imports and government expenditure, while S is the nominal exchange rate (number of units of domestic currency per unit foreign currency) and P and P* refer to national price levels. In what follows, upper-case letters denote natural levels of variables while lower-case letters indicate logarithmic values (unless otherwise indicated) and starred values refer to foreign variables. Since the rest of the model is most conveniently specified in logarithmic terms it is necessary to log-linearize equation (1'). A logarithmic linear approximation to equation (1') is given by (1") In Y « (C°/Y°) In C + ^ In X - \i2 In E - n2 In IM + (G°/Y°) In G where a indicates an arbitrary initial value and where E (= SP* /P) is the real exchange rate and /¿i and /¿2 are the shares of exports and imports to income respectively, i.e., fii = (X°/Y°) and fi2 = (E - IM/Y)°. We next hypothesize the following functional forms for consumption, exports and imports. lnC = c = Ciy + c2q In X = x = Xi (s + p* - p) + x2 y* In IM = im = mi V ~ m2 (s + p* - p) where q is the real stock price (in terms of domestic output) and all parameters are defined positively. The presence of a stock market effect upon real consumption can be explained by appealing to wealth-type considerations. The reduced form for the logarithm of domestic output can be shown to be given by OPEN ACCESS | Licensed under CC BY 4.0 | https://creativecommons.org/about/cclicenses/ DOI https://doi.org/10.3790/ccm.23.4.496 | Generated on 2023-01-16 12:59:52 512 (1) Jagdeep S. Bhandari and Hans Genberg y = di y* + d2q + d3 (s + p* - p) + d4 g where tox 2 j (C7Y°)-C2 di = ; a2 = D D fr-Xi* ti2(m2-l) J (G7Y°) a3 = ; d4 = D D D = [1 -c^CVY0*^"!!)] It is assumed that the Marshall-Lerner condition is satisfied, i.e., (xi + m2 - 1) > 0 so that d, > 0 for all i.13 The analogous expression for foreign aggregate demand is (2) y* = di y + d2 q* - d3 (s + p* - p) + d4 g* Money market equilibrium in the two countries is described by (3a) m-h=viy-v2i (3b) m* - h* = vi y* - v2i* when i and i* are nominal interest yields in the two countries while h and h* are price indices given by14 (4a) h = dp + (1 - 6) (s + p*) (4b) h* = dp* + (1 - 6){p-s) 0 < 6 < 1 It is straightforward to show that (1 - 6), the share of imported goods in home consumption is related to other structural parameters of the model via (l-<5) = m2/(C/Y)°. Nominal interest yields are linked via the uncovered interest parity condition (5) i = i* + se where se is the expected rate of depreciation of the exchange rate. We posit that expected depreciation is governed by the expectational scheme 13 In addition, D > 0 is the usual stability condition which is also assumed satisfied. 14 These price indices are exact if the underlying utility function is Cobb-Douglas in nature. OPEN ACCESS | Licensed under CC BY 4.0 | https://creativecommons.org/about/cclicenses/ DOI https://doi.org/10.3790/ccm.23.4.496 | Generated on 2023-01-16 12:59:52 Exchange Rate Movements and International Interdependence of Stock Markets 513 (6) se = - d{ss) 6 > 0 where 6 is the speed of adjustment of expectations towards the long-run value of the exchange rate s. It will turn out subsequently that this expectational scheme is consistent with perfect foresight for a properly constrained value of 6. The next set of relations equates the expected real return on shares, which consists of both capital gains and profits (JT, Jt*), to the real return on domestic bonds in each country.15 Thus, (7a') q/q + Jt/q = (i - p) = r (7b') q*/q* + n*/q* = {i* - p*) = r* Equation (7a') - (7b') can be linearized around the initial steady-state as (7a) q + jt=fq + qr-qf (7b) q* + JC* = r* q* + q* r* - q* f* It may be noted that equation (7a) and (7b) when solved forward with the appropriate transversality conditions yield an expression for the real stock price as the present value of anticipated future profits when discounted at the real interest rate, T } ~ lr(t)dt qt= I ^ (T) Exp. dr o Finally, real profits are related procyclically to the deviation of output from its full capacity level, (8a) n = b0 + bl (y - y) (8b) = b0 + {y* - y*) Similar expressions are also used in Gavin (1986). And, as also noted by the latter, when bi = 0, the "stock" is exactly like an indexed perpetuity so that the model reduces to the standard type without stock market effects. Thus, bi measures the extent of departure of the present model from the usual framework wherein stock market effects are excluded. Finally, the parameter bQ measures the "natural" rate of profit in the steady-state. 15 These equations represent arbitrage relationships between bonds and stocks in each economy. OPEN ACCESS | Licensed under CC BY 4.0 | https://creativecommons.org/about/cclicenses/ DOI https://doi.org/10.3790/ccm.23.4.496 | Generated on 2023-01-16 12:59:52 514 Jagdeep S. Bhandari and Hans Genberg The final equations of the model specify price dynamics. We assume that price adjustment occurs according to (9a) (9b) P* = r(y -y) P* = y{y* - y*) i.e., prices respond positively to the state of excess demand. 2. Solution of the Model This subsection discusses the solution to the model described above. Inspection of the model immediately reveals that the model as described involves fourth-order dynamics with equations involving p, p*, q and q*.16 Because such a system is analytically intractable we proceed instead to utilize the method of averages and differences proposed by Aoki (1981). Essentially, this technique permits us to decouple the dynamic system into two sub-systems, one involving averages of variables and the other involving differences (across countries) in the same variables. Each of these two sub-systems is second-order in nature and is therefore, analytically tractable.17 It is convenient to begin with the steadystate solution to the model. Following that, we discuss the dynamics of the two sub-systems and then the saddle point paths which yield us the impact effects for various disturbances. In the steady state of the model s = se = p = p* = q = q* = 0.18 From the interest parity condition equation (5), along with the definition of real interest rates, it follows that nominal and real interest rates are equalized across countries in the steady state, Next, steady-state profits are (from equation (8)) 16 An additional dynamic equation involving s would ordinarily have been involved had we imposed perfect foresight directly instead of utilizing the expectational scheme described in (6). 17 The averages-differences technique can also be utilized if parameters are not country-wise identical; however, additional approximations are involved in this area. See Aoki (1981) for details. 18 It is straightforward however, to incorporate ongoing inflation in the steady state. a) The Steady State (10) i = z*, f = f* and i = f, i OPEN ACCESS | Licensed under CC BY 4.0 | https://creativecommons.org/about/cclicenses/ DOI https://doi.org/10.3790/ccm.23.4.496 | Generated on 2023-01-16 12:59:52 Exchange Rate Movements and International Interdependence of Stock Markets 515 (11) ji — it* = b0 and equation (7) yields (12) q = q* i.e., steady-state real stock prices are also equalized. Explicit solutions for the exchange rate, price levels, and stock prices may now be obtained by using the goods market and money market conditions. These are (13) q = q* = ^-^-(g + g*) 2 a2 . . b0 (14) i = i* = f = f* = <7 d4 (15) (s + p*-p) = K2 - —(9-9*) 2 d3 (1 - 6) d4 v2 b0 (16) p = m + (g - g*) + + K4 2 d3 K3-(d4/2d2)(sf + g*) (1 - d) d4 v2 b0 (17) p* = m* [g - g*) + + K6 2 d3 K5-(di/2d2)(g + g*) r d4 (i - 2 6) i r ] (18) s = Ki + (m — m*) 4- I — J | g - g* J where the K\ s refer to constants that are unnecessary for what follows. Equations (13) - (18) indicate that a monetary expansion in one country, say the domestic country, increases that country's price level and nominal exchange rate equiproportionately. There is no transmission to the foreign country's price level in the steady-state. At the same time real stock prices and the real exchange rate remain unaffected. By contrast, an increase in domestic government expenditure reduces real stock prices and increases nominal and real interest yields. It is also seen that while domestic prices increase following domestic fiscal expansion, the effect upon foreign prices is uncertain, i.e., either positive or negative transmission could occur. Finally, while the real exchange rate appreciates in standard fashion, the effect upon the nominal exchange rate is contingent upon the proportions of domestic versus foreign goods in the price index. Specifically, the usual result of nominal appreciation occurs only if the share of domestic goods in the domestic price index is less than one half. OPEN ACCESS | Licensed under CC BY 4.0 | https://creativecommons.org/about/cclicenses/ DOI https://doi.org/10.3790/ccm.23.4.496 | Generated on 2023-01-16 12:59:52 516 Jagdeep S. Bhandari and Hans Genberg b) Dynamics and Impact Effects The solution to the dynamics and impact effect in the model is obtained by decomposing the model into two sub-systems involving averages and differences respectively. Defining average and difference variables respectively as Ba = (B + B*) / 2; Bd = {B - B*) where B and B* are any domestic and foreign variable, the model can be written in average form as (19a) ma - ha = vxya - v2ia (19b) pa = y(ya-ya) (19c) qa + 7ia = fqa + qra - qf (19d) Jtf1 = b0 + (ya - ya) This subsystem involves second-order dynamics which can be expressed as V 0 yd2/(l - do "(p* (20) = r d2 (9V1 \ q" g/v2 1 qy - öl 1 (qa -qa) _ L l-di V v2 /_ _ (qa -qa) The roots of equation (20) are given by C = ± V*2+ {4qyd2/v2(l - d^}] / 2 where I". d2 (qv1 \ It is clear that a saddle point exists irrespective of whether x ^ 0, i.e., one root is positive and the other negative. The difference model may be written as (21a) (1 + dx) (yd - yd) = d2 (qd - qd) + 2 d3 (s - S) - 2 d3 (pd - pd) (21b) [2 (1 - 6) + v2 6] (s - s) = - (2 6 - 1) (pd - pd) - v, (yd - yd) (21c) md - (gd - gd) = vx (yd - yd) + v2 d(s - s) (2Id) (gd -gd) = (2 6- 1) (pd - pd) + 2 (1 - S) (s - s) (21e) pd = y(yd-yd) OPEN ACCESS | Licensed under CC BY 4.0 | https://creativecommons.org/about/cclicenses/ DOI https://doi.org/10.3790/ccm.23.4.496 | Generated on 2023-01-16 12:59:52 Exchange Rate Movements and International Interdependence of Stock Markets 517 (2 If) qd + 7id = f(qd-qd) + qrd (21g) ji* = bi (yd - yd) After considerable re-arrangement the dynamics of this sub-system may be shown to be given by (22) • an «21 <*12 Û22 (Pd ~ Pd) (qd~qd) where 2 d3 y (1 + v2 9) an = —? T- > 0 {(1 + dO [2 (1 - Ô) + v2 0] + 2 d3 vx ) yd2 [2 (1-0) +v20] a 12 = "T T- > 0 {(1 + dx) [2 (1- Ô) + v2 6] + 2d3 Vi} ^21 <*21 _ f an {b1 + q(2ó- 1) y} _ g (2 ó - 1) 6 { Vl an - y (2 6 - 1) } 1 ~ L y y {2 (i — ô) + v2 0} J I". q(2ô- l)gvifli2 _ Q12 { + q (2 ó — 1) y} 1 " y { 2 (1 - <5) + v2 0} y J Saddle point stability requires that - [an a22 + ^12 <*2i] < 0. As is evident this condition is not met without additional restrictions. Sufficient conditions for saddle point stability are a21, a22 > 0. It may be readily verified that with a value of f large enough, both a22 and a21 are positive. Assuming that saddle point stability does exist, the stable solutions to equations (20) and (22) are given by (Pa~Pa) = iPo-pa) Exp.çt (Pd~Pd) = iPdo-pd) Exp.u where Ç, À < 0 are the stable roots. The saddle point paths corresponding to these sub-systems are S(1 -di) (23) (qa0 - qa) = (pj - p°) yd2 (24) (qj - qd) = ( H^iL j (pd _ pd)19 \ a12 / 19 Recall that q = q* = <f and qd = 0. OPEN ACCESS | Licensed under CC BY 4.0 | https://creativecommons.org/about/cclicenses/ DOI https://doi.org/10.3790/ccm.23.4.496 | Generated on 2023-01-16 12:59:52 518 Jagdeep S. Bhandari and Hans Genberg along with I" y (2 <5 — 1) + vi A 1 (25) (s0 - s) = - —j— -Y- [pd 0 - pd] L y (2 (1-6) + v2e} J It is straightforward to show that the perfect foresight value of the expectational parameter 6 is 6* = - A. Finally, the impact effects upon output (average and difference forms) are given by (26) (1 - dx) (ya 0 - ya) = d2 (qa 0 - qa) (27) („- - - (rf - + (.. - „ - (p- - The long-run effects of any disturbance are obtained from equations (10) - (18). The impact effects upon average and difference variables is thus given from equations (23) - (27), keeping in mind that pa 0 and pd 0 are not "jump" variables and evolve only over time. Once the impact effects upon average and difference variables is known, the effects upon original variables are easily obtained as follows: (28a) B0 = (Bq + 2Ba 0)/2 (28b) B* = (2 Ba 0 - Bd 0)/2 where B0 = (P0, q0, Vo) and B $ = (P*01q*0iy*0) 3. Effects of Nominal and Real Disturbances a) Monetary Expansion Consider first the effects of a domestic monetary expansions as represented by dm > 0. As indicated previously, such a disturbance produces no steady-state effects upon q (real stock prices in either country), p* (foreign price level), e (real exchange rate) and either interest rate. It leads however, to equiproportionate increases in the domestic price level (dp/dm = 1) and the nominal exchange rate (ds/dm = 1). The impact effect upon the nominal (and real) exchange rate of a domestic monetary expansion is given by equation (25) and is ds0 (29) — = (1 + Z) dm I" y(25-l)+v1A ] where Z = —? r- L r { 2 (1 - «5) + v2 0} J OPEN ACCESS | Licensed under CC BY 4.0 | https://creativecommons.org/about/cclicenses/ DOI https://doi.org/10.3790/ccm.23.4.496 | Generated on 2023-01-16 12:59:52 Exchange Rate Movements and International Interdependence of Stock Markets 519 It is clear from equation (29) that if £ > 0, we have exchange rate "overshooting" and conversely for £ < 0. It will turn out that there will always be nominal exchange rate overshooting for either monetary or real disturbances but not both. This will become apparent shortly. The effects upon real stock prices in the two countries following domestic monetary expansion are (A + aii) _ 2g(l-d1) a 12 2 yd2 ^ 0 2 2£(l-d0 (A + an) + 2yd2 a 12 ^ 0 2 i.e., effects upon stock prices are a priori unclear.20 Exactly symmetric effects of course, occur for an increase in foreign money supply. Finally, output effects are obtained from equations (26) - (27). Additional insight into the qualitative and quantitative effects involved will be obtained from the numerical simulations considered below. The transitional effects of the disturbance upon these variables can be determined by reference to the steady-state and impact effects and by virtue of the fact that adjustment along the stable path must occur in accordance with a second-order exponential path.21 Specifically, foreign prices initially 20 It may be shown that the average level of stock prices increases following an increase in domestic money, while the effect upon the difference level is unclear, i.e., C(l-d0 . (A + an) (dqa0/dm) = > 0; (dqd0/dm) = ^ 0. 2yd2 a 12 21 Note that while the difference and average variables adjust along first-order paths, original variables such as pt, p*, qt and q*t involve each of the stable roots of the average-difference subsystem and therefore follow second-order paths. By contrast, the nominal exchange rate path is first-order. For example, the complete solutions for domestic and foreign prices are Pt = {pd + (Po " Pd) Exp. At + 2 [pa + (pi - pa) Exp. } /2 P*t = {2[pa + (p2-p°)Exp. *<] - [pd + (Vd0 - pd) Exp. At]}/2 i. e., second-order paths with the stable roots A and ? are involved. A similar statement is true for stock prices qt and The nominal exchange rate, on the other hand, is given by the following first-order path (see (25)). [y(2 <5- 1) + vi A 1 r , jn l— [pd0 - pd Exp. At y{2 (1 - <5) + v2 0} J (30a) dq0 dm (30b) dq *o dm OPEN ACCESS | Licensed under CC BY 4.0 | https://creativecommons.org/about/cclicenses/ DOI https://doi.org/10.3790/ccm.23.4.496 | Generated on 2023-01-16 12:59:52 526 Jagdeep S. Bhandari and Hans Genberg transmitted to foreign output except in three cases (cases 3, 4 and 8) and is positively transmitted to foreign stock prices (although in damped fashion) in every case. Finally, domestic real expenditure expansion always causes exchange rate overshooting, an increase in domestic output and a decline in foreign stock prices in every instance. In five cases (cases 2, 4, 6, 8 and 9) domestic stock prices increase initially while in the other cases, they register a decline. Finally, except in three cases (cases 2, 6, and 9), the disturbance is again negatively transmitted to foreign output. IV. Reconciling the Theory and the Stylized Facts As a first attempt to judge the empirical relevance of the theoretical model, we shall now examine to what extent the stylized facts of Section II can be interpreted within that framework. At this stage we forego formal empirical tests of the model in favor of a modest and partial reconciliation of the theory and the facts. First, we note that the lack of co-integration between stock prices and exchange rates presumably stems from the existence of permanent real shocks that have differential effects on the countries in our sample. Sticky prices do of course render the effects of purely monetary disturbances persistent, but in principle some long-run relationship between the variables should exist in the data if only such shocks were present.30 The fact that short-run movements in stock prices are positively correlated across countries can be used either to place restrictions on the parameters of the theoretical model or to draw inferences about the nature of shocks. Shocks that are positively correlated across countries will obviously give rise to similar movements in the endogenous variables. Positive correlation of shocks can be the result either of active coordination of policies or of common disturbances such as worldwide productivity shocks. In either case our perfectly symmetrical theoretical economies will respond in an identical fashion. Minor asymmetries in the real world could account for less than perfect co-movements in the data even in response to such shocks. Common movements in stock prices could also come about in response to country-specific shocks provided that the transmission mechanism is appropriately specified. In terms of the various cases examined in the previous section we see that not all of them can generate the positive correlation of 30 It is of course possible that the tests carried out are not sensitive enough to discriminate between the possibility of complete lack of long-run relationships and a high degree of persistence. OPEN ACCESS | Licensed under CC BY 4.0 | https://creativecommons.org/about/cclicenses/ DOI https://doi.org/10.3790/ccm.23.4.496 | Generated on 2023-01-16 12:59:52 Exchange Rate Movements and International Interdependence of Stock Markets 527 stock prices found in the data. For fiscal shocks in particular, the only ones that do are those in which domestic stock prices fall as a result of a domestic fiscal expansion. In response to monetary shocks it is true that positive transmission is the rule, but it should be noted that for several combinations of parameters the international spill-over effects are quantitatively rather small. It appears then that either some degree of explicit coordination of economic policies or a certain commonness of shocks is necessary to explain the pervasive positive correlation of stock price movements. A prominent feature of the empirical results of Section II was that exchange rate changes do not have a stable relationship with movements of stock prices. This finding can readily be reconciled with the theoretical model and the judgment concerning the sources of shocks given in the previous paragraph. Suppose the positive cross-country correlation between stock prices is mainly the result of common shocks or coordinated policies, but that occasional country-specific disturbances give rise to exchange rate movements. Depending on the type and location of the latter, it would be possible to observe changes in the exchange rate in either direction in association with common upward or downward movements in stock prices.31 The finding that coincident stock price movements are most common should not be taken to suggest that there are no differences between countries at all. Both the charts in the Introduction and the evidence presented in Section II.4 indicate that relatively persistent deviations do occur. Furthermore, it was found that these deviations could be related to movements in the real exchange rate between countries but that the correlation between variations in relative stock prices and the real exchange rate is sometimes positive and sometimes negative. The results of the theoretical model are in conformity with these results, provided the predominant shocks are sometimes of monetary and sometimes of real origin. An expansionary domestic monetary policy will depreciate the domestic currency and lead to a relative increase of domestic stock prices, accounting for a positive correlation between (q - q*) and e. A contractionary domestic fiscal policy, on the other hand, will again lead to a real currency depreciation on impact, but also to a relative decrease in domestic stock prices. A negative correlation between (q - q *) and e would then emerge. 31 If the common movement in stock prices is the result of 'transmission' of purely country-specific shocks, the weak and unstable relationships between these movements and exchange rate changes can occur if the shocks alternate between countries. OPEN ACCESS | Licensed under CC BY 4.0 | https://creativecommons.org/about/cclicenses/ DOI https://doi.org/10.3790/ccm.23.4.496 | Generated on 2023-01-16 12:59:52 528 Jagdeep S. Bhandari and Hans Genberg V. Conclusions and Suggestions For Further Research In this paper we have documented a number of empirical regularities governing the relationship between stock prices in different countries and exchange rates. In particular, we have found a strong contemporaneous correlation between national stock price indexes in different countries, and a weaker and time-varying relationship between relative stock price movements and real exchange rates. A relatively standard two-country macroeconomic model was constructed and shown to be compatible with the empirical findings. In the model common shocks or coordination of economic policies account for the co-movements of stock prices between countries. The distinction between real and monetary shocks can explain time-variation in the relationship between real exchange rates and relative stock prices. The analysis in this paper can be extended in a number of directions in order to examine the robustness of our conclusions with respect to changes in theoretical specification and empirical methodology. At the theoretical level it would be useful to expand the role of stock prices by including them as an argument in the demand for money and as a determinant of investment. Friedman (1988) shows that the real value of the stock market has a significant positive wealth effect in the demand for money in the United States. Incorporating such effects could alter the dynamics of our model in important ways, especially with respect to the exchange rate. The real value of stock prices is likely to influence investment decisions by firms and therefore the capital stock and potential output level of the economy. This important role of the stock market was excluded from our model in order to preserve some degree of analytical tractability. It would be useful to investigate how stock market linkages influence national investment rates and, thereby, the synchronization of medium- to long-term growth performance across countries.32 In order to make the theoretical results conform more closely to statistical hypotheses, it would be useful to introduce stochastic elements explicitly into the model. If, in addition, this were combined with more structural detail, it would be possible to investigate the effects of a greater variety of shocks and of alternative specifications of the covariance structure of these shocks. Furthermore one could, in principle, also explore the different 32 Andresen (1988) contains an informal but suggestive discussion of an international q-theory of investment. OPEN ACCESS | Licensed under CC BY 4.0 | https://creativecommons.org/about/cclicenses/ DOI https://doi.org/10.3790/ccm.23.4.496 | Generated on 2023-01-16 12:59:52 Exchange Rate Movements and International Interdependence of Stock Markets 529 implications of permanent versus transitory shocks. Since the solution of our relatively simple structure already presents some technical difficulties, it is of course likely that the complications suggested above will make analytical results impossible to come by and necessitate the use of numerical methods. As far as empirical work is concerned, two main directions of research appear promising. The first would be to design and implement more sophisticated methods to measure the types, sources and magnitudes of shocks that are thought to be important for stock price and exchange rate movements.33 This would allow a more formal test of our conjecture that the time-varying correlation between relative stock prices and real exchange rates is due to the occurrence of different types of shocks at different times. A second and more ambitious direction for research is to extend the work of Cutler, Poterba and Summers (1988) to an international setting. As shown in Section III, common components of stock price movements in different markets are essentially contemporaneous. This implies, as our theory also suggests, that the relevant forcing variables for any one country could, and should, include innovations in foreign variables. A lot could potentially be learned about economic interdependence by establishing exactly how and which foreign variables effect domestic stock prices. Appendix In this appendix we provide some detail concerning the empirical tests conducted in Section II of the main text. Time Series Properties of the Data Series In order to test for the presence of unit roots in the time series representation of each data series, the following regressions were estimated: (Al) Axt = -0iXi_i + ut (A2) A2xt = - 4>2Axt - i + vt x = {Ps,P,s^,q,eij} If is not significantly different from zero and is, a unit root is present in the level of x but not in its first difference. In other words, x is inte- 33 Appropriately modified, the method used in Bhandari, Flood, and Home (1989) seems to be a good candidate. OPEN ACCESS | Licensed under CC BY 4.0 | https://creativecommons.org/about/cclicenses/ DOI https://doi.org/10.3790/ccm.23.4.496 | Generated on 2023-01-16 12:59:52 530 Jagdeep S. Bhandari and Hans Genberg grated of order 1. Using the appropriate critical values for the test (i.e., those presented in Dickey and Fuller) it was found, not surprisingly perhaps, that for all variables and for all countries it was not possible to reject the presence of one unit root in each series.34 References Adler, M. and Dumas, B.: "International Portfolio Choice and Corporate Finance: A Synthesis," Journal of Finance, Vol. 38, No. 3 (June 1983), pp. 925 - 84. - Andresen, S.: "Integrated Equity Markets and International Business Cycles," (unpublished PhD dissertation, Graduate Institute of International Studies, Geneva, Switzerland, 1988). - Aoki, M.: Dynamic Analysis of Open Economies, (Academic Press: New York, 1981). - Bhandari, Jagdeep S.: Exchange Rate Determination and Adjustment, (Praeger: New York, 1982). - Bhandari, Jagdeep S., Flood, Robert P., and Home, Jocelyn P.: "Evolution of Exchange Rate Regimes." (Forthcoming, Staff Papers, International Monetary Fund, 1989). - Cutler, D., Poterba, J., and Summers, L.: "What Moves Stock Prices?", NBER Working Paper No. 2538 (Cambridge, Massachusetts: National Bureau of Economic Research, March 1988). -Engle, R. F., and Granger, C. W. J.: "Co- Integration and Error Correction: Representation, Estimation and Testing," Econometrica, Vol. 55, (1987), pp. 251 - 76. - Friedman, M.: "Money and Stock Prices," Journal of Political Economy, Vol. 96, No. 2, (April 1988), pp. 221 - 45. - Gavin, M.: "The Stock Market and Exchange Rate Dynamics," International Finance Discussion Paper, No. 278, Board of Governors of the Federal Reserve System (1986). -International Monetary Fund: World Economic Outlook, 1988. -Murphy, R.: "Stock Prices, Real Exchange Rates, and Optimal Capital Accumulation," International Monetary Fund Working Paper, WP/88/31, (Washington: 1988). - Schwert, G. W.: "Why Does Stock Market Volatility Change over Time?" Working Paper No. 2798, National Bureau of Economic Research, (1988). - Turnovsky, S. J.: "Monetary and Fiscal Policy under Perfect Foresight: A Symmetric Two-Country Analysis," Economica, Vol. 53 (1986), pp. 139 - 157. Zusammenfassung Devisenkursbewegungen und internationale Inderdependenz von Aktienmärkten In diesem Beitrag werden Verbindungen zwischen Aktien- und Devisenkursbewegungen untersucht. Im ersten Teil zeigt eine empirische Untersuchung für sieben Industrieländer auf der Grundlage von Daten ab 1974 eine Reihe von Regelmäßigkeiten auf. Danach scheint sich der Nennwert der Aktien in diesen Ländern in bedeutendem Maße zu entsprechen. Auf ähnliche Weise korrelieren darüber hinaus auch die 34 To economize on space, details of the results are not presented here. They may be obtained from the authors. OPEN ACCESS | Licensed under CC BY 4.0 | https://creativecommons.org/about/cclicenses/ DOI https://doi.org/10.3790/ccm.23.4.496 | Generated on 2023-01-16 12:59:52 Exchange Rate Movements and International Interdependence of Stock Markets 531 Effektivwerte der Aktien. Gleichzeitig scheint jedoch keine stabile Relation zwischen dem Nennwert der Aktien und dem der Devisen zu bestehen. In der zweiten Hälfte des Beitrags wird ein theoretisches Modell konstruiert und untersucht, mit dem Muster für Effektiv- und Nennwertanpassungen bei Aktien und Devisen geschaffen werden können, welche den bei den Daten festgestellten ähnlich sind. Die Tatsache, daß - wie empirisch festgestellt - kurzfristige Bewegungen bei den Aktienkursen über Ländergrenzen hinweg positiv korrelieren, kann entweder für eine Restriktion der Parameter des theoretischen Modells oder für den Beweis der Existenz von gegensätzlichen grundlegenden Störungen herangezogen werden. Bei unserem Modell lassen zum Beispiel über Ländergrenzen hinweg positiv korrelierende Störungen ähnliche Bewegungen bei den endogenen Variablen wie den Aktienkursen entstehen. Umgekehrt können positiv korrelierende Störungen das Ergebnis entweder aktiver Politikkoordinierung oder von gewöhnlichen Störungen, wie zum Beispiel weltweiten Produktivitätsstörungen, sein. Gewöhnliche Aktienkursbewegungen könnten sich auch aus länderspezifischen Störungen ergeben, sofern der Transmissionsmechanismus auf geeignete Weise spezifiziert wird. Schließlich ist das Modell auch in der Lage, die empirische Erkenntnis zu berücksichtigen, daß eine stabile Relation von Aktienwerten und nominellen Devisenkursen fehlt. Der Beitrag schließt mit Beobachtungen zu den weiteren Forschungsarbeiten in diesem Bereich. Summary Exchange Rate Movements and International Interdependence of Stock Markets This paper examines linkages between movements of stock prices and movements of exchange rates. In the first part, an empirical analysis using post-1974 data for seven industrialized countries establishes a number of regularities. Thus, nominal stock prices in these countries appear to be significantly correlated. In addition, real stock prices are also similarly correlated. At the same time, however, there appears to be no stable long-run relationship between nominal stock prices and nominal exchange rates. The second half of the paper constructs and analyzes a theoretical model which is capable of generating patterns of adjustment in real and nominal stock prices and exchange rates that are similar to those found in the data. The fact that short-run movements in stock prices are empirically positively correlated across countries can be used either to place restrictions on the parameter of the theoretical model or to show inferences about the nature of the underlying shocks. For example, in our model, shocks that are positively correlated across countries give rise to similar movements in endogenous variables such as stock prices. In turn, positive correlation of shocks can be the result of either active coordination of policies or of common disturbances such as worldwide productivity shocks. Common movements in stock prices could also come about in response to country-specific shocks provided that the transmission mechanism is appropriately specified. Finally, the model is also able to accommodate the empirical finding pertaining to the lack of a stable relationship between stock prices and nominal exchange rates. The paper concludes with some observations relating to further research in this area. OPEN ACCESS | Licensed under CC BY 4.0 | https://creativecommons.org/about/cclicenses/ DOI https://doi.org/10.3790/ccm.23.4.496 | Generated on 2023-01-16 12:59:52 532 Jagdeep S. Bhandari and Hans Genberg Résumé Les mouvements des cours de change et l'interdépendance internationale des marchés des titres Cet article examine les rapports entre les mouvements des cours de bourse et ceux des taux de change. Dans la première partie, une analyse empirique, utilisant des données post 1974 de sept pays industrialisés établit un nombre de régularités. Les cours de bourse nominaux dans ces pays semblent être en relation étroite. En plus, les cours de bourse réels sont aussi corrélés similairement. En même temps, pourtant, il ne semble pas exister de relation stable à long terme entre les cours de bourse nominaux et les taux de change nominaux. Dans la seconde partie de ce travail, les auteurs construisent et analysent un modèle théorique, capable de produire des modèles d'ajustement des cours de bourse réels et nominaux et des taux de change, qui sont similaires à ceux trouvés dans ces données. Le fait que des mouvements à court terme des cours de bourse sont corrélés empiriquement de façon positive à travers les pays, peut être utilisé, soit pour poser des restrictions au paramètre du modèle théorique, soit pour tirer des conclusions sur la nature des chocs sous-jacents. Par exemple, dans notre modèle, des chocs qui sont corrélés positivement à travers les pays entraînent des mouvements similaires de variables endogènes, comme des cours de bourse. A son tour, une corrélation positive de chocs peut résulter soit d'une coordination active des politiques, soit de troubles communs, comme par exemple des chocs de productivité mondiaux. Des mouvements communs dans les cours de bourse pourraient aussi être la réponse à des chocs spécifiques au pays, à condition que le mécanisme de transmission soit spécifié de façon appropriée. Finalement, le modèle est aussi capable d'ajuster la constatation empirique concernant le manque de relation stable entre les cours de bourse et les taux de change nominaux. Dans leur conclusion, les auteurs font quelques observations sur d'autres recherches dans ce domaine. OPEN ACCESS | Licensed under CC BY 4.0 | https://creativecommons.org/about/cclicenses/ DOI https://doi.org/10.3790/ccm.23.4.496 | Generated on 2023-01-16 12:59:52