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Relationship between oil prices, exchange rates, stock markets and industrial production: an analysis of emerging countries

Soylu, Sibel
It has been a widely investigated issue in the literature that many factors affect the financial and economic development of a country. Extensive regions are covered through the various researches and many variables are utilized to explain whether there exists any connection between the selected variables or not. The aim of this paper is to analyze and interconnect the relationship between the exchange rates, real stock returns, crude oil prices and industrial production level for emerging countries. Toda Yamamoto Augmented VAR for Granger non-causality methodology is followed to determine the linkages and make inferences about the results. VAR variables. Monthly data is used covering the period between January 1990 and December 2016. The results show that there exists a significant causal relationship between production and crude oil prices. It is also evidenced that causality from exchange rates to manufacturing indices can be used to explain the dynamics of the economy of emerging countries. Only causality relation from exchange rates to stock returns is exhibited to be a meaningful relation to interpret the results. Weak causal linkage from stock market returns to industrial production is observed for emerging countries, opposite direction relation is found to be insignificant.