Special Aspects of Money and Stock Market Indicators Forecasting, Considering the Macroeconomic Shocks in Developing Countries

Abstract

The purpose of the article is to improve approaches to forecasting and analyzing the sensitivity of money-and-credit and stock markets to macroeconomic shocks in developing countries, which are characterized by a high level of socio-economic uncertainty and political risks. The article substantiates the advantages of expanding the standard forecasting methodology based on one-sided forecasts by analyzing the sensitivity of the indicators studied to macroeconomic perturbations, especially in the period of high uncertainty observed in recent years. An empirical analysis of the reaction of the main indicators of monetary policy and stock index in countries with a transformational economy in response to macroeconomic shocks during the short term was carried out, using impulse response functions. It was identified that in the markets of most countries there was a stabilization of the stock index and the short-term interest rates during the first 2-6 months after the start of macroeconomic shocks, which was accompanied by their moderate periodic fluctuations. In only three of the seven developing countries studied, stock indexes and/or interest rates could not reach equilibrium levels on their own during the short term and required active central bank stabilization measures. It can be assumed that the degree of reaction of the stock and money-and-credit markets is primarily associated with the individual characteristics of the country’s economic system and its ability to absorb macroeconomic shocks. The carried out analysis of sensitivity allowed to determine what shocks have a critical impact on the functioning of the financial and money-and-credit markets in each of the economies under research.

Keywords

• money-and-credit policy
• stock market
• scenario analysis
• developing countries
• monetary perturbations