Financial Markets Under SVAR Approach for Middle East Economies

Abstract

The relationships between monetary/financial variables have highly drawn attention in the literature using different techniques so as to observe whether the underlying theoretical mechanisms are compatible with the facts. In this study the scope is to investigate the relationship between exchange rate, money supply, inflation and interest rates for several Middle East economies, namely as Turkey, Pakistan, Iran and Egypt, using monthly data set. Due to the severe criticisms to a-theoretical formation of standard VAR model, structural VAR (SVAR) analysis has evolved as it enables the researcher to impose theoretical restrictions. Some of empirical findings display different results if the countries reflect diverse economic structures.

Keywords: Interest Rate, Exchange Rate, Stock Exchange, SVAR Approach

JEL Classification: C22, C32, E43, F31, G10