Digest Finance

Macroeconomic Determinants of the Currency and Stock Market Shocks: A Panel VAR Approach

Vol. 22, Iss. 4, DECEMBER 2017

Received: 1 March 2017

Received in revised form: 16 March 2017

Accepted: 31 March 2017

Available online: 19 December 2017


JEL Classification: E44, F31, F45, G14

Pages: 379–391


Borochkin A.A. National Research Lobachevsky State University of Nizhny Novgorod, Nizhny Novgorod, Russian Federation borochkin@yandex.ru

Importance The article addresses the currency and stock market volatility caused by market participants' perception of macroeconomic news that central banks across opened economy countries take into account when making decisions on changes in the monetary policy.
Objectives The study aims to offer a quantitative approach to assessing a reaction of the currency and stock market to macroeconomic news publication.
Methods The study employs descriptive statistics methods. Basic calculations rest on the Panel Vector Autoregression method.
Results News about changes in interest rates, inflation and industrial production instantly trigger financial market volatility in all analyzed countries. I found volatility spillovers from currency to stock markets and vice versa. The aftermaths of the news-related shocks are absorbed by the market during 3–4 days.
Conclusions and Relevance The modern monetary policy of central banks implies no immediate measures against inflation spikes, therefore, the reaction of markets to publication of price indices is quite slow as compared to official announcements about interest rate changes. Financial markets respond slowly to publication of important macroeconomic news if the latter can be predicted on the basis of leading indicators.

Keywords: currency shock, Panel Vector Autoregression, VAR, monetary policy


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