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Exchange Rate Pass-Through in Transition Economies: The Case of the Republic of Macedonia

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  • Besnik Fetai

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Abstract

This paper investigates the relative costs and benefits associated with introducing a different exchange rate regime in the Republic of Macedonia. In this finding, all econometrics results, using different methodologies (SVAR and VECM), show that introducing a different strategy of the exchange rate targeting in order to promote rapid economic growth could easy disturb macroeconomic stability (after having achieved it at a substantial cost) without any significant economic benefits. In the long term, the coefficient of exchange rate reveals that a one percent change in the exchange rate will generate an increase in the prices level of 0.52 percent, indicating that 52 percent of changes in the exchange rate feed into the prices level. The investigation suggests that introducing a different strategy of the exchange rate regime is likely to incur more costs than benefits.

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File URL: http://www.wdi.umich.edu/files/Publications/WorkingPapers/wp1014.pdf
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Bibliographic Info

Paper provided by William Davidson Institute at the University of Michigan in its series William Davidson Institute Working Papers Series with number wp1014.

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Length: pages
Date of creation: 01 Apr 2011
Date of revision:
Handle: RePEc:wdi:papers:2011-1014

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Keywords: exchange rate; pass-through effect; SVAR and VECM;

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