Abstract
This paper discusses theoretical issues concerning the relationship between the stock market and economic development and applies five econometric models for the case of Mexico: (a) unit root tests; (b) cointegration analysis, (c) error correction model, (d) Granger causality tests; and (e) impulse-response analysis. Results suggest, for the 1968–2002 period, that the variables involved are non-stationary, are cointegrated, present a bilateral Granger-causality relationship and the response of the stock market to industrial innovations is initially positive and lasts for about six months; the response of industrial production to stock market shocks is positive and dies out after the fifth month.
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