Causality between Inflation Rate and Stock Prices Index (Evidence from Damascus Securities Exchange)

  • 13 Mar 2021
  • Recently published Research - Business


Dr. Kinan Yaghi

Published in

Tishreen University Journal for Research and Scientific Studies -Economic and Legal Sciences Series, Vol. 42, No. 1, February 2020.


This research aims to examine the causal relationship between the inflation rate and the stock prices in Damascus Securities Exchange (DSE), for determining which is the dependent variable and the independent variable. Over the period of January 2011 to December 2017 using monthly data observations.

The causal relationship between the two variables was tested using the Granger Causality Test, which helps to examine the nature of the causal relationship among time series, while vector autoregression-VAR model was used to excluding the effect of the self-correlation between the two variables.

The empirical result concluded that the inflation rate and stock price data series are stationary and integrated of order one. Then we have applied Johansen procedure to test for the possibility of a co-integrating relationship. The result displays that there is a cointegrating relationship between stock prices and inflation rate. The Granger causality test also indicates that stock prices have a unidirectional causality on the inflation rate. That means stock prices Granger-cause inflation rate.

Keywords:  Inflation Rate, Stock Price, Causality Test, Damascus Securities Exchange, Vector Error Correction Model.

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