Macro economy, stock market and oil prices: Do meaningful relationships exist among their cyclical fluctuations?

Abstract

This paper examines the relationship among consumer price index, industrial production, stock market and oil prices in Greece. Initially we use a unified statistical framework (cointegration and VECM) to study the data in levels. We then employ a multivariate VAR model to examine the relationship among the cyclical components of our series. The period of the study is from 1996:1 to 2008:6. Findings suggest that oil prices and the stock market exercise a positive effect on the Greek CPI, in the long run. Cyclical components analysis suggests that oil prices exercise significant negative influence to the stock market. In addition, oil prices are negatively influencing CPI, at a significant level. However, we find no effect of oil prices on industrial production and CPI. Finally, no relationship can be documented between the industrial production and stock market for the Greek market. The findings of this study are of particular interest and importance to policy makers, financial managers, financial analysts and investors dealing with the Greek economy and the Greek stock market.