Author(s)

Ranpu Zhu

Corresponding Author

Ranpu Zhu

ABSTRACT

This paper aims to study the relationship, mutual influence and feedback effect between macroeconomic fluctuations and financial markets using a VAR model. A VAR model was constructed using six varibles: GDP growth rate, CPI, interest rate, exchange rate, stock index, and bond yield. The study shows that macroeconomic fluctuations greatly impact financial markets, especially interest rates, and exchange rates have a greater impact on stock indices and bond yields. Equity indices have a positive impact on GDP growth and CPI, while bond yields have a negative impact on GDP growth. Finally, the paper makes some policy recommendations and suggests for future research directions.

KEYWORDS

VAR model; Macroeconomic fluctuations; Financial market