THE REAL AND THE FICTION IN THE ECONOMY OF WESTERN BALKANS: A RESEARCH METHODOLOGY

Abstract

This study attempts to propose a Research Model for study linkages across Western Balkans’ economies macroeconomic indicators and the stock market. Do they move independently of each other? Are there any asymmetries following shocks or not? And, finally, do financial crises have any effect on these linkages? The answers to these questions will clarify the distance between the real and the fiction, i.e., macroeconomic developments and stock market trends, in the sensitive area of the six Western Balkan countries: Albania, Bosnia-Herzegovina, North Macedonia, Montenegro, Serbia, and Kosovo. Deciphering stock market trends and linking them to the real economy would be a powerful tool of their economic maturity, in their process of EU accession. In this paper, we proposed a research methodology to investigate the dynamic linkages among the six countries of Western Balkans’ economic indices, stock markets, and interest rates/yields for the 2015-2021 period, via Granger causality tests and VARs, for the full and several sub-periods. Can some of these countries play the role of economic leaders in the area? 1. Are there any impulse responses and variance decompositions from various VARs, indicating independent move of the real economic indices, bond yields, and the stock market in these six countries? 2. Are there signs of disconnection among important real and financial sectors in each of the countries examined? Do these countries have followed their paths and that no significant short-run (or even long-run) linkages of real production growth rates across countries exist or not? Utilizing this methodology has two advantages: it feeds empirical research to capture the economic development in the sensitive, political, economic, and social terms, area of Western Balkans, and contribute to the economic evaluation of the EU Stabilization and Association Process. Keywords: macroeconomic indices, stock market, Western Balkans, EU Accession.