Macroeconomic transmission effects on stock market performance in Tanzania: evidence from a structural VAR analysis

Résumé

This study examines the dynamic interactions between key macroeconomic indicators and stock market performance in Tanzania, a frontier market in sub-Saharan Africa. Using a Structural Vector Autoregression (SVAR) framework, we analyze monthly data for the Tanzania Share Index (TSI), gold returns, inflation rate, and electricity consumption employed as a high-frequency proxy for real economic activity to address the temporal limitations of quarterly GDP data common in developing economies. Johansen co-integration analysis identifies four stable long-run relationships, while a one-lag VAR specification suggests rapid adjustment dynamics. Impulse response functions reveal that shocks dissipate within three to five months. Notably, the TSI responds negatively to economic activity shocks, indicating a structural mismatch between stock market valuations and real-sector growth. Forecast error variance decomposition further underscores this decoupling: own shocks explain approximately 75%–80% of TSI fluctuations, suggesting that within this four-variable system, macroeconomic factors account for a modest share of equity variation. Gold returns, however, exhibit persistent positive responses to inflation shocks, confirming their role as an inflation hedge. Overall, the findings suggest Tanzania's financial market remains relatively disconnected from real-sector fundamentals, reflecting its early stage of financial deepening. Policy recommendations emphasize strengthening financial infrastructure, enhancing macro-financial linkages, and developing robust commodity-price monitoring systems to improve signal transmission to capital markets.

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