International Journal of Social Science & Economic Research
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ALAKA, Adedayo; UCHEAGA, Emeka Gerald; IBIDAPO, David Timilehin

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1ALAKA, Adedayo; 2UCHEAGA, Emeka Gerald; 3 IBIDAPO, David Timilehin
1Department of Banking and Finance; Yaba College of Technology, Yaba, Lagos State, Nigeria.
2,3Department of Banking and Finance; Studies, College of Business and Social Sciences, Covenant University, Ota, Ogun State, Nigeria.

Adedayo, ALAKA,, et al. "A REVIEW OF THE PENDULUM SWING IN STOCK PRICES AND INTEREST RATE." Int. j. of Social Science and Economic Research, vol. 3, no. 4, Apr. 2018, pp. 1271-1288, Accessed 2018.
Adedayo, A., Gerald, U., & Timilehin, I. (2018, April). A REVIEW OF THE PENDULUM SWING IN STOCK PRICES AND INTEREST RATE. Int. j. of Social Science and Economic Research, 3(4), 1271-1288. Retrieved from
Adedayo, ALAKA,, UCHEAGA, Emeka Gerald, and IBIDAPO, David Timilehin. "A REVIEW OF THE PENDULUM SWING IN STOCK PRICES AND INTEREST RATE." Int. j. of Social Science and Economic Research 3, no. 4 (April 2018), 1271-1288. Accessed , 2018.

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Stock prices tend to grow aggressively during periods of falling interest rates. Economists opine that stock price boom are triggered by excessive supply of money and low interest rate. This paper takes a reverse look at the effect of asset price boom on interest rate. The study analyzed secondary data from World Bank World Development Indicators 2016 and CBN Statistical Bulletin 2015 between 1985 and 2015. Using Granger causality test, the study found that there is a bidirectional Granger causality running from ASI to MPR with a continuous feedback effect. The Bayesian Vector Autoregressive model was used in testing the impulse response function and variance decomposition analysis, the study found that one standard deviation innovations in ASI has a negative impact on MPR, although shocks to ASI does not significantly explain long term forecast error variance in MPR. The study recommends that Central Banks ensure that interest rates fully reflect broad economic conditions at all times and are not pressured downwards by unsustainable growth in stock prices in the financial markets.