Analyzing the Dynamics between Macroeconomic Variables and the Macedonian Stock Market Index

Abstract

This paper presents an empirical analysis of the dynamic relationships between the Macedonian Stock Exchange Index and a set of macroeconomic variables including Gross Domestic Product (GDP), central bank bills interest rate, interest rates on deposits, inflation, and crude oil prices. Utilizing the Autoregressive Distributed Lag (ARDL) approach, we examine the short-term and long-term impacts of these variables on the stock market from Q1 2009 to Q3 2023. Our ARDL Bounds Test results confirm the presence of a cointegrated relationship, indicating that the stock market and macroeconomic variables are mutually influenced over the long term. In the long run, increases in GDP positively impact the Macedonian stock exchange market, while rising central bank interest rates exert a negative effect on the MBI10 index. While, in the short term, only changes in oil prices and the stock index itself are found to have significant impacts on the MBI-10, with the error correction term indicating a swift adjustment to equilibrium after short-term shocks. This study contributes to the literature by providing nuanced insights into the macroeconomic determinants of stock market performance in North Macedonia, offering implications for policymakers and investors regarding the critical factors influencing market dynamics. The findings underscore the importance of economic growth for stock market vitality, the critical role of monetary policy, and the sensitivity of the stock market to oil price volatility, emphasizing the need for strategic economic policies to foster a stable and growth-conducive market environment.