LONG RUN AND SHORT RUN EFFECTS OF MONETARY AND EXCHANGE VARIABLES ON STOCK PRICES IN IRAN

Yıl 2012, Cilt: 4 Sayı: 1, 1 - 10, 01.06.2012

Abbas Alavi Rad Mohammad Reza Eslami

Öz

The movements in the stock prices are an important indicator of the economy. The
purpose of this paper was to examine the relationship between Tehran Stock
Exchange (TSE) price index and monetary variables in Iran. We have used
Autoregressive Distributed Lag (ARDL) approach and Error Correction Model
(ECM) to determine the effects of monetary and exchange variables on TSE price
index in long run and short run. Quantitative estimates based on the time series
monthly data from 2004 to 2009, indicate that liquidity (M2) has a positive effect
on TSE price index in long run. But, free market exchange rate (FR) and legal
reserves (LR) have a negative effect on TSE price index in long run. On the other
hand, monetary and exchange variables have a significant effect on TSE price
index in short run. However, the coefficient of the Error Correction Term (ECT)
shows that speed of adjustment is slow and the ECM only can explain 69 per cent
of fluctuation of TSE price index.

Anahtar Kelimeler

Stock Price Index, Monetary Variables, ARDL Model, ECM

Kaynakça

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