How Do Central Bank Policy Rates and Inflation Affect Stocks in Fragile-Five Economies? Evidence from Panel PMG-ARDL Approach

This study examines the dynamic relationship between the central bank policy rate, inflation, and stock exchange index in the Fragile Five economies (Brazil, India, Indonesia, South Africa, and Türkiye) using monthly data from July 2005 to March 2023. Employing the Panel PMG-ARDL approach, we find a positive and significant effect of inflation on stock exchange indices, while central bank policy rates exert a substantial and negative impact. The Error Correction Model confirms cointegration among the variables, corroborating the long-run relationships established in the Panel ARDL estimations. Both inflation and central bank policy rates emerge as significant joint Granger causes of stock exchange indices, highlighting their predictive power.