Measuring Macroeconomic Uncertainty in Zimbabwe
MPRA Paper No. 94759, University Library of Munich, Germany.
10 Pages Posted: 15 Jul 2019
Date Written: June 29, 2019
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.
Keywords: Economic Development, Employment, Expectations, Expected Volatility, GARCH (1,1), Investment, Investors, Macroeconomic Uncertainty, Savings, Stock Market Indices, Zimbabwe
JEL Classification: B22, B26, C58, D01, D02, D03, D14, D21, D22, D84, D81, E02, E03, E21, E22, E24, E44, E58, E61, F16
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