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Article
Impact of Macroeconomic Policies on Stock Market in Mongolia
Author(s)
Namjil Enkhbaatar
Full-Text PDF XML 1161 Views
DOI:10.17265/1537-1514/2019.03.001
Affiliation(s)
Saitama University, Saitama, Japan
ABSTRACT
According to the extensive
literature, many factors affect the stock market by either direct way or
indirect way. This study aims to investigate the adverse impacts of fiscal
policy and monetary policies on stock market in Mongolia by using monthly data over
the period January 2003 to December 2017 and applying a vector-autoregressive
(VAR) model, with the predictions that fiscal crowding-out effect and too high
policy rate would lower the stock price and stocks traded value. The empirical
analysis in this study indicates that stock price and stocks traded value
respond negatively to the shocks of policy rate and government securities
traded value, respectively. In other words, the accumulated government debt and
too high policy rate have crowded out the private investments in stock market
and lowered the stock price by increasing riskiness of stocks or reducing the
firms’ net worth, which is consistent with the main predictions of this study.
Therefore, to enhance the contribution of stock market for sustainable economic
growth, government and authorities need to engage in implementing macro prudent
and sound economic policies from the long-term perspective. When government
securities are considered as a fiscal policy tool, it is significant for government to reduce the
accumulated government debt and obtain the normalization of domestic bond yield
through improving tax-based financing rather than government debt financing.
Regarding the monetary policy, it is crucial to obtain
the benchmark policy rate among Asian economies with addressing significant
factors affecting the high policy rate including macroeconomic condition,
balance of payment, exchange rate fluctuations, financial intermediation, and
deposit holders base.
KEYWORDS
stock market, fiscal policy, government securities, crowding-out effect, monetary policy, policy rate, vector autoregressive model
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