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Output Volatility In Macedonia: A Role For The Exchange Rate?

  • Ph.D Student Marjan Petreski

    (University American College - Skopje)

The study aims to empirically explore the relationship between exchange-rate rigidity and output volatility for Macedonia, building on the flaws of the existing, though scarce literature on the topic. Specifically, it carefully constructs the output volatility regression; considers the measure of output volatility; and accounts for the endogeneity bias doubted to be present in the respective literature. Moreover, it utilizes a Hodrick-Prescott definition of volatility, to avoid persistent series which are obtained by using rolling standard deviations. The empirical investigation covers the period 1998:Q1 - 2009:Q2 and uses a GMM estimator. We find that, in general, a TOT shock opts to increase output volatility, but under a more flexible regime, it starts to affect the output fluctuations negatively, implying a role of a buffer. Quite the contrary, when nominal shocks (monetary and/or fiscal) hit the economy, a more rigid alternative of the exchange rate is preferable.

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Article provided by University of Craiova, Faculty of Economics and Business Administration in its journal Revista Tinerior Economisti(The Young Economists Journal).

Volume (Year): 1 (2010)
Issue (Month): 14 (April)
Pages: 143-158

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Handle: RePEc:aio:rteyej:v:1:y:2010:i:14:p:143-158
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  1. Paul De Grauwe & Gunther Schnabl, 2004. "Exchange Rate Regimes and Macroeconomic Stability in Central and Eastern Europe," International Finance 0404011, EconWPA.
  2. Reinhart, Carmen & Rogoff, Kenneth, 2004. "The modern history of exchange rate arrangements: A reinterpretation," MPRA Paper 14070, University Library of Munich, Germany.
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