Ibrahim Sulaiman, Noman Arshed, Afia Mushtaq

(University of Management and Technology, Pakistan)

 

 

Abstract: This study investigates the impact of stock market development on inflation in SAARC countries using panel data approach. The estimated results of Panel OLS, FEM model and REM model have revealed that OLS model is not applicable and we have use panel co-integration to find out unbiased and normally distributed coefficient estimates like Kao Residual Co-integration, and Long run estimates FMOLS to find out how stock market development influence inflation. The results of long run estimates FMOLS suggest that market capitalization is decreasing inflation by -0.152%, total value of stock traded is increasing inflation by 0.164% and turnover ratio is decreasing inflation by -0.191% in the long run. Thus, the results suggest that stock market development can help put chains on inflation in SAARC countries by introducing more firms to increase size and volume of share transaction, as they will load to rise in production.

 

 

Key words: inflation; stock market development; fully modified OLS; Kao residual co-integration

 

JEL codes: E44, O43, E31