| Summary: | The paper analyzed the impact of financial market shocks on financial market stability. The goal was achieved by employing quarterly time-series data spanning from 2003:Q1 to 2020:Q4. The study used various econometric techniques such as stationarity, determining optimal lag length, cointegration analysis, estimating a vector error correction model, impulse response functions and forecast error variance decomposition. Following this, the long run relationship amongst the variables was established. The findings revealed that inflation has a negative impact on financial stability in both the short and long run. Lastly, it was only the shocks in economic activities that was found to have a significant impact on financial stability.
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