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Real Exchange Rate Dynamics in Macedonia: Old Wisdoms and New Insights

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  • Bogoev, Jane
  • Bojceva Terzijan, Sultanija
  • Égert, Balázs
  • Petrovska, Magdalena

Abstract

The ambition of this paper is to analyse real exchange rate dynamics in Macedonia relying on a highly disaggregated dataset. We complement the indirect evidence reported in Loko and Tuladhar (2005) and we provide direct evidence on the irrelevance of the Balassa-Samuelson effect for overall inflation via service prices in the CPI. Furthermore, we estimate variants of the BEER model. We show that alternative econometric techniques and data definitions bear an impact on the robustness of the estimation results. Overall, productivity, government consumption and the openness variables were found to be fairly robust in terms of sign and size. An increase/decrease in the productivity variables is associated with an appreciation/depreciation of the real effective exchange rate. Given that the B-S effect admittedly has a very limited role to play through nontradable prices in the CPI, this relationship could be explained by the (inverse) quality effect proposed by Loko and Tuladhar and, possibly in addition to that, by the nontradable component of tradable prices. --

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Bibliographic Info

Article provided by Kiel Institute for the World Economy in its journal Economics: The Open-Access, Open-Assessment E-Journal.

Volume (Year): 2 (2008)
Issue (Month): 18 ()
Pages: 1-19

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Handle: RePEc:zbw:ifweej:7331

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Keywords: Real exchange rate; Balassa-Samuelson; Macedonia;

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References

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  1. Egert, Balazs & Lommatzsch, Kirsten & Lahreche-Revil, Amina, 2006. "Real exchange rates in small open OECD and transition economies: Comparing apples with oranges?," Journal of Banking & Finance, Elsevier, Elsevier, vol. 30(12), pages 3393-3406, December.
  2. Balázs Égert, & László Halpern & Ronald MacDonald, 2005. "Equilibrium Exchange Rates in Transition Economies: Taking Stock of the Issues," William Davidson Institute Working Papers Series, William Davidson Institute at the University of Michigan wp793, William Davidson Institute at the University of Michigan.
  3. Boileau Loko & Anita Tuladhar, 2005. "Labor Productivity and Real Exchange Rate," IMF Working Papers, International Monetary Fund 05/113, International Monetary Fund.
  4. Ronald MacDonald & Peter B. Clark, 1998. "Exchange Rates and Economic Fundamentals," IMF Working Papers, International Monetary Fund 98/67, International Monetary Fund.
  5. Lopez, Humberto & Molina, Luis & Bussolo, Maurizio, 2007. "Remittances and the real exchange rate," Policy Research Working Paper Series 4213, The World Bank.
  6. Marit Hinnosaar & Hannes Kaadu & Lenno Uusküla, 2005. "Estimating the equilibrium exchange rate of the Estonian kroon," Bank of Estonia Working Papers, Bank of Estonia 2005-2, Bank of Estonia, revised 10 Oct 2005.
  7. László Halpern & Charles Wyplosz, 1997. "Equilibrium Exchange Rates in Transition Economies," IMF Staff Papers, Palgrave Macmillan, vol. 44(4), pages 430-461, December.
  8. Ronald MacDonald & Cezary Wójcik, 2003. "Catching Up: The Role of Demand, Supply and Regulated Price Effects on the Real Exchange Rates of Four Accession Countries," CESifo Working Paper Series 899, CESifo Group Munich.
  9. De Broeck, Mark & Slok, Torsten, 2006. "Interpreting real exchange rate movements in transition countries," Journal of International Economics, Elsevier, Elsevier, vol. 68(2), pages 368-383, March.
  10. Canzoneri, Matthew B & Cumby, Robert & Diba, Behzad, 1996. "Relative Labour Productivity and the Real Exchange Rate in the Long Run: Evidence for a Panel of OECD Countries," CEPR Discussion Papers, C.E.P.R. Discussion Papers 1464, C.E.P.R. Discussion Papers.
  11. Eva Gutierrez, 2006. "Export Performance and External Competitiveness in the Former Yugoslav Republic of Macedonia," IMF Working Papers, International Monetary Fund 06/261, International Monetary Fund.
  12. Jan Bruha & Jiri Podpiera, 2006. "Transition Economy Convergence in a Two-Country Model," Computing in Economics and Finance 2006, Society for Computational Economics 154, Society for Computational Economics.
  13. Balázs Égert & Kirsten Lommatzsch, 2004. "Equilibrium Exchange Rates in the Transition: The Tradable Price-Based Real Appreciation and Estimation Uncertainty," William Davidson Institute Working Papers Series, William Davidson Institute at the University of Michigan 2004-676, William Davidson Institute at the University of Michigan.
  14. Ronald MacDonald, 1997. "What Determines Real Exchange Rates? The Long and Short of it," IMF Working Papers, International Monetary Fund 97/21, International Monetary Fund.
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Cited by:
  1. Josheski, Dushko & Koteski, Cane, 2011. "Analysis of Purchasing power parity with data for Macedonia," MPRA Paper 32023, University Library of Munich, Germany, revised 2011.

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