86th International Atlantic Economic Conference

October 11 - 14, 2018 | New York, USA

Forecasting macroeconomic indicators and their responses to economic shocks in trading partner countries

Saturday, 13 October 2018: 2:20 PM
Bulat Mukhamediyev, Doctor of economic sciences , Economics, Al-Farabi Kazakh National University, Almaty, Kazakhstan
In the world economy, processes are interrelated. The behavior of the macroeconomic indicators of each country affects their dynamics in other countries. The interdependence of macroeconomic indicators does not allow investigating their behavior in isolation for one country. The article is devoted to the issues of forecasting real and financial indicators, as well as income inequality, and their responses to economic shocks that arise in the world. In particular, the consequences of global oil price shocks were considered. The study was carried out for Kazakhstan and its main trading partners. The applied methodology is based on the global vector autoregression model, which permits overcoming the so-called 'curse of dimension' problem. In the process of parameters estimating and calculations, quarterly data were used for 33 countries, including Belarus, Kazakhstan, Russia, as well as China, the countries of the European Union and the United States. The calculations used quarterly statistical data for 1995 through 2017 from the International Financial Statistics of IMF, the World Bank, as well as national statistical offices of some countries and their central banks. Statistical tests were carried out, such as checking variables for stationarity, determining the order of integration, testing for weak exogeneity of external variables, and determining the number of cointegrating equations. The set of variables for each country contains real output, inflation rate, real exchange rate, short-term and long-term interest rates, and the Gini index. Forecasts were made for these indicators for individual countries, as well as responses for each country to different shocks. These responses to shocks can be interpreted as deviations of the macroeconomic variable from the forecast trajectory. From the point of view of the impact on the economy of Kazakhstan, the greatest interest is represented by shocks from Russia, China, EU countries, the United States, and a global variable, such as the world price of oil. In particular, it was shown that a sharp change in the world price of oil, a reduction of output in Russia, fluctuations in output and short-term interest rates in China and the US had a statistically significant effect on Kazakhstan's macroeconomic indicators, while shocks in the EU countries did not have a statistical significant impact on these indicators. Thus, taking into account the results of forecasting and responses to external shocks will make it possible to reduce uncertainty in the decision-making process in the country.