Abstract
Does Eurozone equity market liquidity affect economic growth? If so, how does the Euro currency affect the dynamic relationship between growth and stock market liquidity (macro-liquidity relation) of the Eurozone? We address these questions using data from ten Eurozone countries and the UK. The findings document the predictability role of liquidity proxies on economic growth, suggesting that stock market liquidity influences economic growth. The results reveal that liquidity increases substantially after a structural break realized around the Euro's introduction in Europe, and in all countries except Portugal we find that liquidity improvement coincides with higher growth. During periods of high exchange-rate volatility between currencies (which tend to be periods of high uncertainty and economic convergence), growth becomes highly affected by stock market liquidity movements.