THE CAUSALITY BETWEEN STOCK MARKET DEVELOPMENT AND ECONOMIC GROWTH: EVIDENCE FROM THE UNITED STATES

The present study investigates the direction of causality between stock market development and economic growth in the case of the United States. We use the Johansen‐Juselius cointegration procedure followed by vector error‐correction modelling. We examine both the long‐run cointegrating relationships and associated causal orderings, and short‐run interactions among the variables. The results indicate that there are stable long‐run equilibrium relationships among the variables and that the stock market contains information about future changes in real income.