RESPONSE OF “STOCK MARKET DEVELOPMENT TO MONETARY POLICY

Abstract

The main objective of this study is to assess the response of domestic stock developments to monetary policy in Tanzania market perspective. The study narrowed the macroeconomic factors and chooses only four of them among many including real interest rate, money supply, inflation's rate and exchange rate. to estimates the relationship the study applied several tests and methods, unit root test, autoregressive distributions lags (ARDL) methods, granger causality test to test causal relationships between variables, ARDL bound test for long-run relationship and ARDL error collections methods (ECM) the periods under study is from 2011 to 2020 and the entire test was conducted using secondary data on monthly basis .according to unit root test by Augmented Dickey fuller test it is found that all the variables are stationary at the first difference .based on estimated ARDL coefficients and t-statistics, it Is found that interest and inflations have negative impacts on domestic market capitalizations while money supply and exchange rate have positive impacts “ARDL bound-test founds that there is long-run relationships among variables while Granger causality test found that all the variables as a whole ,interest rate ,money supply, exchange rate, inflations rate and domestic market capitalizations does not explain each other each variables is independent of the other. further the researcher concludes that’s the relationships between inflations rate and real interest rate to stock market capitalizations as the measure of stock market developments is inverse and significance while the relationship between exchange rate and money supply to stock market developments is directs and significance. Also, the study concludes that regulators including Bank of Tanzania (B.O.T) and Capital Market Security Authority (CMSA) should be proactive rather reactive as relates managements of macro-economic variables. also, Tanzania governments needs more attentions in promoting the right political climates which links the politics with stock market development, improving macroeconomic stability, professionalization’s of assets managements and privatizations of managements of public funds though provisions of supports to theories according to which well-functioning, promoting stock market by fueling the engine of economic growth that foster capital accumulations and tuning better investments opportunities.