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0Регион и мир, 2024, № 1(50)
ЭКОНОМИКА_
The influence of monetary policy on capital market in Georgia
Teryan Diana G.
PhD student at the Chair of Finance of Armenian State University of Economics (Yerevan, RA)
https://orcid.org/0000-00Q3-1253-9567 teryan.diana@gmail.com
UDC: 336.7; EDN: IFDSPE; JEL: E5, E52, O16; DOI: 10.58587/18292437-2024.1-117
Keywords: Georgia, monetary policy, capital market, SVAR, impulse response analysis
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Влияние монетарной политики на рынок капитала в Грузии
Терян Диана Г.
Армянский государственный экономический университет, Финансовый факультет, аспирант кафедры финансов (Ереван, РА)
Аннотация. Денежно-кредитная политика влияет на различные отрасли экономики страны, в том числе на финансовые рынки. Денежно-кредитная политика также влияет на показатели рынка капитала, который является важной частью финансового рынка. Из изучения международного опыта становится ясно, что между развитыми рынками капитала и показателями денежно-кредитной политики взаимодействия более сильные и очевидные. В то же время интересно изучить взаимосвязь между инструментами денежно-кредитной политики и различными сегментами рынка капитала в странах с развивающимися рынками. С целью дальнейшего сравнения полученных результатов с аналогичными показателями в Армении, мы исследовали влияние денежно-кредитной политики центрального банка Грузии на различные сегменты рынка капитала с использованием методологии векторного авторегрессионного моделирования (SVAR). В качестве составных частей рынка капитала были взяты рынок государственных облигаций, рынок корпоративных облигаций и фондовый рынок. После анализа корреляций между переменными, построения и оценки структурной векторной авторегрессионной модели, мы провели исследование функций импульсного отклика (impulse response functions). Была изучена реакция индикаторов, включенных в эконометрическую модель, на положительный шок процентной ставки - основного инструмента денежно-кредитной политики центрального банка Грузии. Ключевые слова: Грузия, денежно-кредитная политика, рынок капитала, SVAR, анализ импульсного отклика
Monetary policy tools and financial markets are closely interrelated. The bond between monetary policy changes and capital market fluctuations is more visible in more developed countries. Sometimes, the connection between central banks' interest rates and private sector securities. such as corporate bonds and shares, can be considered weak. In the frame of this article, we analysed monetary policy and capital market relations in the Republic
of Georgia to have an idea how different segments of capital market react to changes of National Bank of Georgia.
We selected six variables that describe both monetary conditions and different parts of capital market in Georgia. Interest rate set by National Bank of Georgia was the main indicator of monetary policy direction. Figure 1 shows the dynamics of monetary policy interest rate.
12.00 11.00 10.00 9.00 8.00 7.00 6.00 5.00 4.00 3.00 2.00 1.00 0.00
777788889999
22222222
2222 2222
Figure 1. National Bank of Georgia interest rate [1]
M3 monetary aggregate and consumer price index were picked up to represent overall monetary situation in the country. Moreover, they are under
direct influence of central bank's policy. Figure 2 and 3 present the movements of M3 and CPI over the same month of the previous year respectively.
45,000.00 40,000.00 35,000.00 30,000.00 25,000.00 20,000.00 15,000.00 10,000.00 5,000.00
777788889999
0 0 0 0 1 1 1 1 2 2 2 2 3 3 3 3 2222222222222222
Figure 2. M3 monetary aggregate (millions GEL) [1]
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Figure 3. Consumer price index (%) [2]
To study capital market we divided it into government bond, corporate bond and stock markets. We took the average yields of government bonds with longer maturity to present state sector of capital market (Figure 4).
12.00 -
11.00 -
10.00 9.00 8.00 7.00 6.00 5.00 4.00 3.00 2.00 1.00 0.00
The corporate bond and stock markets were shown with the help of total trading values on Georgian Stock Exchange (Figure 5 and 6).
Figure 4. Government bond average yields (%) [1]
9,000,000.00 8,000,000.00 7,000,000.00 6,000,000.00 5,000,000.00 4,000,000.00 3,000,000.00 2,000,000.00 1,000,000.00
7 7 7 7 8 8 8 8 9 9 9 9 0 0 0 0 1 1 1 1 2 2 2 2 3
I I I I I I I I I II I I I I I I I I I I I I I I
Figure 5. Corporate bond trading value (USD) [3]
20,000,000.00 18,000,000.00 16,000,000.00 14,000,000.00 12,000,000.00 10,000,000.00 8,000,000.00 6,000,000.00 4,000,000.00 2,000,000.00
1
1 1
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Figure 6. Stock trading value (GEL) [3]
We calculated correlation coefficients between between monetary policy and capital market the mentioned six variables to investigate the segments in Georgia. connections. Table 1 represents the correlation
Table 1. The correlation matrix of NBG interest rate (R), M3 monetary aggregate, CPI, government bond yields (GB),
corporate bond trading value (CB) and stock trading value (S)
R M3 CPI GB CB S
R 1.000000 -0.075147 0.559660 0.740865 -0.025958 -0.040053
M3 -0.075147 1.000000 -0.110395 -0.247827 -0.070846 0.175534
CPI 0.559660 -0.110395 1.000000 0.720025 -0.087246 -0.111227
GB 0.740865 -0.247827 0.720025 1.000000 -0.114922 -0.044188
CB -0.025958 -0.070846 -0.087246 -0.114922 1.000000 -0.001312
S -0.040053 0.175534 -0.111227 -0.044188 -0.001312 1.000000
The table was created by the author based on own calculations
The highest positive correlation coefficient was registered between government bond yields and interest rate. The correlation is quite strong and positive among government bond yields and consumer price index. In case of corporate bonds and stocks connections appear to be weak and sometimes insignificant. There is also high level of positive correlation between consumer prices and the interest rate of the central bank.
Using monthly time-series of the abovementi-oned six variables we designed standard structural vector autoregressive model to investigate how monetary policy and capital market interact in Georgia. The order of the variables included in the model is as follows: NBG interest rate (r), M3 monetary aggregate (M3_change), consumer price index (cpi), government bond yields (gb), corporate
bond trading value (cbvalue_change) and stock trading value (stockvalue_change) registered in Georgian Stock Exchange.
In order to determine the order of integration of the variables we conducted Augmented Dickey-Fuller, Phillips-Perron and Kwiatkowski-Phillips-Schmidt-Shin (KPSS) unit root tests. Stationarity analysis revealed that interest rate, cpi, M3 and government bond yields were stationary at first difference (I(1)), while the remaining variables were stationary at level (I(0)). Lag length examination results highlighted that the most appropriate lag number was 10, taking into consideration the characteristics of our dataset, lag specification criteria analysis results and shortness of time-series available. Our structural VAR model was stable, and
all inverse roots of AR polynomial were inside the unit circle, according to VAR stability diagnostics.
After SVAR model identification and estimation, we performed impulse response functions analysis to see how variables included in the model react to the shock of monetary policy interest rate. The magnitude of the shock was one standard deviation. The time horizon of the projection was set at 24 months. Figure 7 represents the responses of interest rate, M3, consumer prices, government bond yields, corporate bonda and stocks traded values to the interest rate impulse.
The response of the monetary policy interest rate to its own shock was strong and positive. Consumer price index responded negatively to interest rate rise, which was expected according to
Регион и мир, 2024, № 1(50)
the theory. The negative effect on inflation lasted quite long returning to pre-shock levels after around 14 months. The response of M3 monetary aggregate to interest rate impulse was weak and positive at the first lag. Then it started to decline becoming significantly negative by the second month. Overall, the reaction of M3 was quite volatile. Government bond yields' initial response was negative, but it started recovering and turning positive by the second lag, staying above zero until almost fourth period. Corporate bond value traded on the stock exchange reacted negatively to the interest rate shock at the beginning, however it grew to become positive the second month. Stock market response to the impulse was very muted during first periods, but then the fluctuations became more visible.
Response of DjR) to D(R)
Response of D(GB) to D|R)
10 12 14 16 IS 20 22 24
1.0 0.5 0.0 -0.5 -1.0
10 12 14 IE IS 20 22 24
Response of D(CPI) to D(R)
1,200 BOO 400 О
-400 -800 -1,200
Response of CEVALUE_CHANGEto D(R)
2 4 Б S 10 12 14 1Б IB 20 22 24
10 12 14 IS 13 20 22 24
Response of D(M3_CHANGE) to □(R)
Response of STOCKVALUE_CHANGE to D(R)
10 12 14 16 IB 20 22 24
6,000,000 4,000.000 2,000,000
О -i -2,000,000 -4.000,000 -6.000.000
10 12 14 16 IS 20 22 24
Figure 7. Responses to Cholesky One S.D. (d.f. adjusted) innovations ± 2 S. E.
The figures were exported from Eviews software, based on our SVAR model impulse response analysis
Based on our estimations, it can be noted that capital market in Georgia is developing. Monetary policy of National Bank of Georgia affects government bonds segment at a greater extent compared to other parts of capital market. Impulse
response analysis found out that central bank's interest rate positive shock led to government bond yields immediate negative reactions, which then started to recover turning positive and aligning with the expectations and theory. In case of corporate
bonds and stocks trading value changes, the reaction was negative at the beginning of the projection period. Corporate bond market reaction became positive in response to the interest rate shock over following lags, while stock value changes' response remained a bit muted.
References
1. Official website of the NBG (https://nbg.gov.ge/en/statistics/statistics-data)
2. Official website of National Statistics Office of Georgia
(https://www.geostat.ge/en/modules/categories/26/cpi-inflation)
3. Official website of Georgian Stock Exchange (https://gse.ge/en/trades)
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