THE RELATIONSHIP BETWEEN STOCK PRICES AND EXCHANGE RATE IN THE REPUBLIC OF CROATIA: VEC MODEL

U ovome se radu istražuje postoji li u Republici Hrvatskoj veza između cijene dionica i tečaja kune. Da bi se ispitala uzročnost, u radu se koristilo vektorskim modelom s korekcijom odstupanja (VEC model), dekompozicijom varijanci prognostičkih pogrešaka i analizom impulsnih odgovora. U radu je analizirana kratkoročna i dugoročna struktura modela. Analiza dugoga roka ukazuje da bi povećanje cijene dionica vodilo aprecijaciji tečaja, dok je u kratkome roku utjecaj cijene dionica na tečaj gotovo neznačajan. Dodatno, analiza impulsnih odgovora ukazuje da bi povećanje cijene dionica utjecalo na aprecijaciju tečaja.The aim of this paper is to examine the long-run and short-run relationship between stock prices represented by CROBEX and the real effective exchange rate of Croatian Kuna in the Republic of Croatia. This relationship is analysed using vector error correction (VEC) model, forecast error variance decomposition (FEVD) and impulse response analysis. The results showed the existence of a long-run relationship between variables. All variables in the long-run are statistically signifi cant showing that an increase in share prices will lead to the exchange rate appreciation. In the short-run changes in share prices are almost statistically insignificant. Furthermore, impulse response analysis showed that an increase in share prices will lead to the exchange rate appreciation