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Evaluating Monetary Policy Effectiveness in North Macedonia: Evidence from a Bayesian Favar Framework

Author

Listed:
  • Petrovska Magdalena

    (Senior Advisor, Monetary Policy and Research Department National Bank of the Republic of North Macedonia, Blvd Kuzman Josifovski Pitu 1; 1000, Skopje, Republic of North Macedonia)

  • Tonovska Jasna

    (Teaching and research assistant, Department of Foreign Trade, Faculty of Economics – Skopje, Ss. Cyril and Methodius University in Skopje, Republic of North Macedonia)

  • Nikolov Miso

    (Internal Auditor, IUTE Credit Macedonia, Republic of North Macedonia)

  • Sulejmani Artan

    (Analyst, Monetary Policy and Research Department National Bank of the Republic of North Macedonia, Republic of North Macedonia)

Abstract

This paper has adopted a Bayesian FAVAR approach to examine the monetary transmission mechanism in North Macedonia. The model is based on a broad data set that encompasses 140 monthly time series spanning between January 2010 and January 2019. In particular, the impact of policy on bank portfolio variables, and the impact of policy on economic activity variables have been evaluated. Our findings show that monetary tightening, causes a fall in output, inflation rate, employment, bank lending, the stock of government securities held by banks, and equity prices. On the other hand, it increases short-term money market rates, lending rates, deposits, and only in the immediate aftermath of the key policy rate rise, the share of non-performing loans in the loan portfolio. The study is expected to provide useful input to monetary policy implementation in North Macedonia. The study as well enriches the literature in this domain by discussing the challenges facing monetary authorities of small open economies with fixed exchange rate regimes in understanding how their policy instrument work through the economy.

Suggested Citation

  • Petrovska Magdalena & Tonovska Jasna & Nikolov Miso & Sulejmani Artan, 2022. "Evaluating Monetary Policy Effectiveness in North Macedonia: Evidence from a Bayesian Favar Framework," South East European Journal of Economics and Business, Sciendo, vol. 17(2), pages 67-82, December.
    • Handle: RePEc:vrs:seejeb:v:17:y:2022:i:2:p:67-82:n:6
    DOI: 10.2478/jeb-2022-0015
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    References listed on IDEAS

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    More about this item

    Keywords

    Monetary transmission mechanism; FAVAR; Bayesian estimation; Monetary policy;
    All these keywords.

    JEL classification:

    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • E47 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Forecasting and Simulation: Models and Applications

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