Abstract
This paper investigates the relative importance of internal and external shocks on macroeconomic performance of a small open economy, namely Pakistan. The study has used various external sector shocks (world oil price shocks, world commodity price shocks, world interest rate shock) to assess the relative importance of each shock on the macroeconomic performance of Pakistan. Moreover, the study has used stock market volatility to measure the impact of internal sector shocks on macroeconomic performance of the country. The findings, based on VECM analysis, portray that the impact of external sector shocks differ in the real and nominal sectors. Specifically, Oil price shocks and commodity price shocks remain the dominant source of external sector shocks for both nominal and real sectors whereas stock market volatility appears dominant source of fluctuations for industrial production index and nominal money supply, only. The study concludes that to minimize the severity of shocks, Pakistan needs to build up shock absorptive capacity which can be obtained by improving the export base, strengthening the financial sector and reducing dependence on oil imports.
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Article Details
- Year: 2023
- Volume: 44
- Issue: 2
- Pages: 131 - 157
- Accepted: 20.02.2023
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DOI:
https://doi.org/10.5281/zenodo.16892410 -
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How to Cite?
Abdul Rashid, Zainab Jehan, Nazish Kanval (2023). External Shocks, Stock Market Volatility, and Macroeconomic Performance: An Empirical Evidence from Pakistan. Journal of Economic Cooperation and Development, 44(2), 131-157. https://doi.org/10.5281/zenodo.16892410
