Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/148215
Authors: 
Fritsche, Ulrich
Pierdzioch, Christian
Year of Publication: 
2016
Series/Report no.: 
DEP (Socioeconomics) Discussion Papers, Macroeconomics and Finance Series 1/2016
Abstract: 
Models recently studied by Farmer (2012, 2013, 2015) predict that, due to labor-market frictions and "animal spirits", stock-market fluctuations should Granger cause fluctuations of the unemployment rate. We performed several Granger-causality tests on more than half a century of data of German data to test this hypothesis. Confirming findings documented by Farmer (2015) for U.S. data, we found that the stock market Granger causes unemployment in the short run and the long run when we control for a deterministic trend in the unemployment rate. Results of a frequency-domain test show that, in the short run, feedback cannot be rejected, whereas the causality clearly runs from the stock market to the unemployment rate in the medium to long run.
Subjects: 
Cointegration
Granger causality
frequency domain
animal spirits
stock market
unemployment rate
JEL: 
E12
E44
C32
Document Type: 
Working Paper

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