Measuring Macroeconomic Uncertainty in Zimbabwe

Bonga, Wellington Garikai (2019): Measuring Macroeconomic Uncertainty in Zimbabwe.

Abstract

What matters to economic decision-making is whether the economy has become more or less predictable. People and businesses use information around them to form judgements about what might happen in the future. The rise in uncertainty might be associated with increased concern about extreme events, skewed towards worries about bad or disastrous events. The study seeks to measure macroeconomic uncertainty in Zimbabwe, using stock market indices - industrial index and mining index - for the period 2010M1 to 2019M3. Prevalence of macroeconomic uncertainty has been traced from the stock market index trend and stock market returns volatility. The squared residuals of the GARCH(1,1) regression model proxied macroeconomic uncertainty levels. The prevalence of significant macroeconomic uncertainty has been observed, with some periods highly uncertain. The study linked periods of uncertainty to some known political, social and economic events to derive meaning. The study found that some political, social and economic events have a contributing effect on the level of macroeconomic uncertainty. Good events and policies are accompanied by low levels of uncertainty while bad events and controversial policies match with high levels of uncertainty. The study recommends that to create a good economic climate, to attract investment and boost confidence in the economy, policymakers should dwell on reducing macroeconomic uncertainty. Reducing macroeconomic uncertainty require policy consistency, policy consultations, less frequent policy changes, avoiding numerous policies, avoiding policy reversals, among other measures. The observed macroeconomic uncertainty affects proper economic decision-making and is not conducive for high levels of investment for local and international investors; companies may struggle to hire labor, and employees and corporates may delay spending and saving pattern distorted.

• Item Type: MPRA Paper
• Language: English
• Keywords: Economic Development; Employment; Expectations; Expected Volatility; GARCH (1,1); Investment; Investors; Macroeconomic Uncertainty; Savings; Stock Market Indices; Zimbabwe
• Subjects: B - History of Economic Thought, Methodology, and Heterodox Approaches > B2 - History of Economic Thought since 1925 > B22 - Macroeconomics; B - History of Economic Thought, Methodology, and Heterodox Approaches > B2 - History of Economic Thought since 1925 > B26 - Financial Economics; C - Mathematical and Quantitative Methods > C5 - Econometric Modeling > C58 - Financial Econometrics; D - Microeconomics > D0 - General > D01 - Microeconomic Behavior: Underlying Principles; D - Microeconomics > D0 - General > D02 - Institutions: Design, Formation, Operations, and Impact; D - Microeconomics > D0 - General > D03 - Behavioral Microeconomics: Underlying Principles; D - Microeconomics > D1 - Household Behavior and Family Economics > D14 - Household Saving; Personal Finance; D - Microeconomics > D2 - Production and Organizations > D21 - Firm Behavior: Theory; D - Microeconomics > D2 - Production and Organizations > D22 - Firm Behavior: Empirical Analysis; D - Microeconomics > D8 - Information, Knowledge, and Uncertainty > D81 - Criteria for Decision-Making under Risk and Uncertainty; D - Microeconomics > D8 - Information, Knowledge, and Uncertainty > D84 - Expectations ; Speculations; E - Macroeconomics and Monetary Economics > E0 - General > E02 - Institutions and the Macroeconomy; E - Macroeconomics and Monetary Economics > E0 - General > E03 - Behavioral Macroeconomics; E - Macroeconomics and Monetary Economics > E2 - Consumption, Saving, Production, Investment, Labor Markets, and Informal Economy > E21 - Consumption ; Saving ; Wealth; E - Macroeconomics and Monetary Economics > E2 - Consumption, Saving, Production, Investment, Labor Markets, and Informal Economy > E22 - Investment ; Capital ; Intangible Capital ; Capacity; E - Macroeconomics and Monetary Economics > E2 - Consumption, Saving, Production, Investment, Labor Markets, and Informal Economy > E24 - Employment ; Unemployment ; Wages ; Intergenerational Income Distribution ; Aggregate Human Capital ; Aggregate Labor Productivity; E - Macroeconomics and Monetary Economics > E4 - Money and Interest Rates > E44 - Financial Markets and the Macroeconomy; E - Macroeconomics and Monetary Economics > E5 - Monetary Policy, Central Banking, and the Supply of Money and Credit > E58 - Central Banks and Their Policies; E - Macroeconomics and Monetary Economics > E6 - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook > E61 - Policy Objectives ; Policy Designs and Consistency ; Policy Coordination; F - International Economics > F1 - Trade > F16 - Trade and Labor Market Interactions; F - International Economics > F3 - International Finance > F33 - International Monetary Arrangements and Institutions; F - International Economics > F4 - Macroeconomic Aspects of International Trade and Finance > F42 - International Policy Coordination and Transmission; F - International Economics > F6 - Economic Impacts of Globalization > F61 - Microeconomic Impacts; F - International Economics > F6 - Economic Impacts of Globalization > F62 - Macroeconomic Impacts; F - International Economics > F6 - Economic Impacts of Globalization > F63 - Economic Development; G - Financial Economics > G2 - Financial Institutions and Services > G28 - Government Policy and Regulation; G - Financial Economics > G3 - Corporate Finance and Governance > G38 - Government Policy and Regulation; H - Public Economics > H3 - Fiscal Policies and Behavior of Economic Agents > H30 - General; L - Industrial Organization > L5 - Regulation and Industrial Policy > L51 - Economics of Regulation; N - Economic History > N1 - Macroeconomics and Monetary Economics ; Industrial Structure ; Growth ; Fluctuations > N17 - Africa ; Oceania; N - Economic History > N2 - Financial Markets and Institutions > N27 - Africa ; Oceania; O - Economic Development, Innovation, Technological Change, and Growth > O1 - Economic Development > O11 - Macroeconomic Analyses of Economic Development; O - Economic Development, Innovation, Technological Change, and Growth > O2 - Development Planning and Policy > O21 - Planning Models ; Planning Policy; O - Economic Development, Innovation, Technological Change, and Growth > O4 - Economic Growth and Aggregate Productivity > O43 - Institutions and Growth; O - Economic Development, Innovation, Technological Change, and Growth > O4 - Economic Growth and Aggregate Productivity > O44 - Environment and Growth

References

[1]. Bachmann, R., S. Elstner and E.R. Sims (2013), “Uncertainty and Economic Activity: Evidence from Business Survey”, American Economic Journal: Macroeconomics 5, 217–249.

[2]. Baker, S.R, Bloom, N. and Davis, S.J. (2013). Measuring Economic Policy Uncertainty. The Centre for Economic Performance, Economic and Social Research Council, London.

[3]. Bloom, N. (2009), “The Impact of Uncertainty Shocks”, Econometrica 77, 623–685.

[4]. Bonga, W. G (2014). Economic Policy Analysis in Zimbabwe: A Review of Zimbabwe Economic Policies: Special Reference to Zimbabwe Agenda for Sustainable Socio-Economic Transformation (ZIMASSET). Social Science Research Network, http://ssrn.com/abstract=2384863

[5]. Bonga, W. G (2014). Planning to Fail: An Analysis on Economic Planning Failure in Developing Countries. Social Science Research Network, http://ssrn.com/abstract=2524857

[6]. Bonga, W. G (2015). The Need for Efficient Investment: Fundamental Analysis and Technical Analysis. Social Science Research Network (SSRN), https://dx.doi.org/10.2139/ssrn.2593315 .

[7]. Bonga, W. G (2016). An Explanatory Analysis of Components Constituting Economic Policy Success in Zimbabwe. Dynamic Research Journals - Journal of Economics and Finance, Volume 1, Issue 1, pp: 07-12.

[8]. Carriero, Andrea, Todd E. Clark, and Massimiliano Marcellino, 2017. “Measuring Uncertainty and Its Impact on the Economy,” Federal Reserve Bank of Cleveland Working Paper, no. 16-22R.

[9]. Chigumira, G., Chipumho, E., and Chiwunze, G. (2018). An Assessment of the Macroeconomic Policy Formulation and Implementation Processes in Zimbabwe. Zimbabwe Economic Policy Analysis and Research Unit, ISBN: 978-1-77906-371-7.

[10]. Chitiyo, Knox and Kibble, Steve (2014). Zimbabwe’s International Re-engagement: The Long Haul to Recovery. Chatham House Report, The Royal Institute of International Affairs.

[11]. Christou, C., Gozgor, G., Gupta, R., and Lau, C-K. M. (2019). Are Uncertainties across the World Convergent?. University of Pretoria, Department of Economics, Working Paper Series, Working Paper: 2019-07.

[12]. Export.gov (2017). Zimbabwe – Market Challenges. International Trade Administration.

[13]. Grimme, Christian and Stöckli, Marc (2018). Measuring Macroeconomic Uncertainty in Germany. CESifo Forum 1, Volume 19, pp. 46 – 50.

[14]. Haddow, A and Hare, C (2013). Macroeconomic Uncertainty: What is it, how can we measure it and why does it matter?Quarterly Bulletin, Q2.

[15]. Harin, Alexander (2006). Economic Uncertainty Principle? HAL Id:halshs-00090791.

[16]. Jurado, K., S.C. Ludvigson and S. Ng (2015), “Measuring Uncertainty”, American Economic Review 105, 1177–1216.

[17]. Kaya, Orçun (2018). Economic policy uncertainty in Europe: Detrimental to capital markets and bank lending. Deutsche Bank Research, Germany.

[18]. Krol, Robert (2018). Does Uncertainty over Economic Policy Harm Trade, Foreign Investment, and Prosperity? Mercatus Research, Mercatus Center at George Mason University, Arlington, VA.

[19]. Moore, Angus (2016). Measuring Economic Uncertainty and Its Effects. Research Discussion Paper, Reserve Bank of Australia.

[20]. Soric, P. and Lolic, I. (2017). Economic uncertainty and its impact on the Croatian economy. Croatian Science Foundation, Project No. 3858.

[21]. Wong, K., Ng, P. and Cheng, M. (2017). Measuring Economic Uncertainty and its Effect on the Hong Kong Economy. Research Memorandum 11, Hong Kong Monetary Authority.

[22]. World Bank (2014). Republic of Zimbabwe - Zimbabwe Economic Policy Dialogue: Policy Notes for the New Government – 2013. Discussion Document, Report No: ACS13915.