Digest Finance
 

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

Vol. 22, Iss. 4, DECEMBER 2017

PDF  Article PDF Version

Received: 1 March 2017

Received in revised form: 16 March 2017

Accepted: 31 March 2017

Available online: 19 December 2017

Subject Heading: SECURITIES AND FINANCIAL MARKETS

JEL Classification: E44, F31, F45, G14

Pages: 379–391

https://doi.org/10.24891/df.22.4.379

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

References:

  1. Chirkova E.V., Sukhanova M.S. [Impact of the earnings’ guidance provided by public companies on their market capitalization and share price volatility in the Russian stock market]. Korporativnye finansy = Journal of Corporate Finance Research, 2013, no. 4, pp. 37‒52. (In Russ.)
  2. Kondratov D.I. [Formation of the Russian rubles as an international currency]. Ekonomicheskii zhurnal VShE = The HSE Economic Journal, 2012, vol. 16, no. 3, pp. 367‒403. (In Russ.)
  3. Kondratov D.I. [Recent approaches to reforming the global monetary system]. Ekonomicheskii zhurnal VShE = The HSE Economic Journal, 2015, vol. 19, no. 1, pp. 128‒157. (In Russ.)
  4. Reboredo J.C., Rivera-Castro M.A. Gold and Exchange Rates: Downside Risk and Hedging at Different Investment Horizons. International Review of Economics & Finance, 2014, vol. 34, pp. 267–279. URL: Link
  5. Nazlioglu S., Soytas U., Gupta R. Oil Prices and Financial Stress: A Volatility Spillover Analysis. Energy Policy, 2015, vol. 82, pp. 278‒288. URL: Link
  6. Jawadi F., Louhichi W., Ameur H.B., Cheffou A.I. On Oil-US Exchange Rate Volatility Relationships: An Intraday Analysis. Economic Modelling, 2016, vol. 59, pp. 329‒334. URL: Link
  7. Turhan I., Hacihasanoglu E., Soytas U. Oil Prices and Emerging Market Exchange Rates. Emerging Markets Finance and Trade, 2013, vol. 49, iss. S1, pp. 21‒36.
  8. Agudelo D.A., Gutiérrez M., Cardona L. Volatility Transmission between US and Latin American Stock Markets: Testing the Decoupling Hypothesis. Research in International Business and Finance, 2017, vol. 39, part A, pp. 115–127. URL: Link
  9. Allen D.E., McAleer M., Powell R.J., Singh A.K. Volatility Spillovers from Australia's Major Trading Partners Across the GFC. International Review of Economics & Finance, 2017, vol. 47, pp. 159‒175. URL: Link
  10. Della Corte P., Ramadorai T., Sarno L. Volatility Risk Premia and Exchange Rate Predictability. Journal of Financial Economics, 2016, vol. 120, iss. 1, pp. 21‒40. URL: Link
  11. Tunç C., Solakoğlu M.N. Does Exchange Rate Volatility Matter for International Sales? Evidence from US Firm Level Data. Economics Letters, 2016, vol. 149, pp. 152‒156. URL: Link
  12. Rambaldi M., Pennesi P., Lillo F. Modeling Foreign Exchange Market Activity around Macroeconomic News: Hawkes-Process Approach. Physical Review, 2015, vol. 91, iss. 1.
  13. Barunik J., Krehlik T., Vacha L. Modeling and Forecasting Exchange Rate Volatility in Time-Frequency Domain. European Journal of Operational Research, 2016, vol. 251, iss. 1, pp. 329‒340. URL: Link
  14. Tian S., Hamori S. Time-Varying Price Shock Transmission and Volatility Spillover in Foreign Exchange, Bond, Equity, and Commodity Markets: Evidence from the United States. The North American Journal of Economics and Finance, 2016, vol. 38, iss. C, pp. 163‒171. URL: Link
  15. Omrane W.B., Hafner C. Macroeconomic News Surprises and Volatility Spillover in Foreign Exchange Markets. Empirical Economics, 2015, vol. 48, iss. 2, pp. 577‒607.
  16. Redl C. Noisy News and Exchange Rates: A SVAR Approach. Journal of International Money and Finance, 2015, vol. 58, pp. 150‒171. URL: Link
  17. Kenourgios D., Papadamou S., Dimitriou D. Intraday Exchange Rate Volatility Transmissions across QE Announcements. Finance Research Letters, 2015, vol. 14, pp. 128‒134. URL: Link
  18. Grossmann A., Love I., Orlov A.G. The Dynamics of Exchange Rate Volatility: A Panel VAR Approach. Journal of International Financial Markets, Institutions and Money, 2014, vol. 33, pp. 1‒27. URL: Link
  19. Dąbrowski M.A., Papież M., Śmiech S. Exchange Rates and Monetary Fundamentals in CEE Countries: Evidence from a Panel Approach. Journal of Macroeconomics, 2014, vol. 41, pp. 148‒159. URL: Link
  20. Oseni I.O. Exchange Rate Volatility and Private Consumption in Sub-Saharan African Countries: A System-GMM Dynamic Panel Analysis. Future Business Journal, 2016, vol. 2, iss. 2, pp. 103‒115. URL: Link
  21. Guriev S.M., Kolotilin A.D., Sonin K.I. [Determinants of expropriationing the oil sector: A theory and evidence from panel data]. Ekonomicheskii zhurnal VShE = The HSE Economic Journal, 2008, vol. 12, no. 2, pp. 151‒175. (In Russ.)

View all articles of issue

 

ISSN 2311-9438 (Online)
ISSN 2073-8005 (Print)

Journal current issue

Vol. 23, Iss. 3
September 2018

Archive