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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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File URL: http://dx.doi.org/10.5018/economics-ejournal.ja.2008-18
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File URL: http://econstor.eu/bitstream/10419/18031/1/economics_2008-18.pdf
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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. International Monetary Fund, 2001. "Interpreting Real Exchange Rate Movements in Transition Countries," IMF Working Papers 01/56, International Monetary Fund.
  2. 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.
  3. Lionel Halpern & Charles Wyplosz, 1996. "Equilibrium Exchange Rates in Transition Economies," IMF Working Papers 96/125, International Monetary Fund.
  4. 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 1464, C.E.P.R. Discussion Papers.
  5. Égert, Balázs & Lommatzsch, Kirsten, 2004. "Equilibrium exchange rates in the transition: The tradable price-based real appreciation and estimation uncertainty," BOFIT Discussion Papers 9/2004, Bank of Finland, Institute for Economies in Transition.
  6. Balazs Egert & Kirsten Lommatzsch & Amina Lahrèche-Révil, 2007. "Real Exchange Rates in Small Open OECD and Transition Economies: Comparing Apples with Oranges?," CESifo Working Paper Series 1928, CESifo Group Munich.
  7. Ronald MacDonald & Peter B. Clark, 1998. "Exchange Rates and Economic Fundamentals," IMF Working Papers 98/67, International Monetary Fund.
  8. Balázs Égert & László Halpern & Ronald MacDonald, 2005. "Equilibrium Exchange Rates in T ransition Economies: T aking Stock of the Issues," Working Papers 106, Oesterreichische Nationalbank (Austrian Central Bank).
  9. Lopez, Humberto & Molina, Luis & Bussolo, Maurizio, 2007. "Remittances and the real exchange rate," Policy Research Working Paper Series 4213, The World Bank.
  10. Marit Hinnosaar & Hannes Kaadu & Lenno Uusküla, 2005. "Estimating the equilibrium exchange rate of the Estonian kroon," Bank of Estonia Working Papers 2005-2, Bank of Estonia, revised 10 Oct 2005.
  11. Boileau Loko & Anita Tuladhar, 2005. "Labor Productivity and Real Exchange Rate," IMF Working Papers 05/113, International Monetary Fund.
  12. Eva Gutierrez, 2006. "Export Performance and External Competitiveness in the Former Yugoslav Republic of Macedonia," IMF Working Papers 06/261, International Monetary Fund.
  13. Jan Bruha & Jiri Podpiera, 2006. "Transition Economy Convergence in a Two-Country Model," Computing in Economics and Finance 2006 154, Society for Computational Economics.
  14. Ronald MacDonald, 1997. "What Determines Real Exchange Rates? The Long and Short of it," IMF Working Papers 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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