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

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  • Ph.D Student Marjan Petreski

    (University American College - Skopje)

Abstract

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.

Suggested Citation

  • Ph.D Student Marjan Petreski, 2010. "Output Volatility In Macedonia: A Role For The Exchange Rate?," Revista Tinerilor Economisti (The Young Economists Journal), University of Craiova, Faculty of Economics and Business Administration, vol. 1(14), pages 143-158, April.
    • Handle: RePEc:aio:rteyej:v:1:y:2010:i:14:p:143-158
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    References listed on IDEAS

    as
    1. Carmen M. Reinhart & Kenneth S. Rogoff, 2004. "The Modern History of Exchange Rate Arrangements: A Reinterpretation," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 119(1), pages 1-48.
    2. Edwards, Sebastian & Levy Yeyati, Eduardo, 2005. "Flexible exchange rates as shock absorbers," European Economic Review, Elsevier, vol. 49(8), pages 2079-2105, November.
    3. Levy-Yeyati, Eduardo & Sturzenegger, Federico, 2005. "Classifying exchange rate regimes: Deeds vs. words," European Economic Review, Elsevier, vol. 49(6), pages 1603-1635, August.
    4. Paul De Grauwe & Gunther Schnabl, 2004. "Exchange Rate Regimes and Macroeconomic Stability in Central and Eastern Europe," CESifo Working Paper Series 1182, CESifo.
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    More about this item

    Keywords

    exchange-rate regime; output volatility;

    JEL classification:

    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
    • F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics
    • F43 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Economic Growth of Open Economies

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