Follow the Money: A Holistic Investigation into Economic Agents Responses to Uncertainty Shocks

Abstract

This article explores the intricate relationship between uncertainty shocks and economic dynamics in North Macedonia, focusing on the impact of volatility in the MBI10 index on GDP and economic agents’ responses. Drawing on a comprehensive dataset spanning from 2009 to 2023, encompassing variables such as interest rates, inflation, loan rates, oil prices and VSTOXX, the study employs an autoregressive distributed lag (ARDL) model to analyse both short-term and long-term relationships. The empirical analysis reveals significant findings regarding the effects of uncertainty shocks on GDP. Heightened volatility in the MBI10 index negatively impacts GDP, signalling adverse effects on investor confidence, consumer spending and overall economic activity. Conversely, positive impacts are observed from interest rates, indicating their role as drivers of economic expansion. Furthermore, the study identifies significant short-term relationships, highlighting the influences of past GDP values, inflation, interest rates, loan rates and oil prices on current GDP dynamics. The error correction method underscores the necessity of aligning with long-term equilibrium, offering critical insights for policymakers and stakeholders. This understanding of how economic agents navigate uncertainty empowers policymakers to develop effective strategies for fostering enduring economic growth and stability.

Keywords: Uncertainty Shocks, GDP Dynamics, Autoregressive Distributed Lag (ARDL) Model, Macroeconomic Variables, North Macedonia

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