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Macroeconomic Dynamics in Macedonia and Slovakia: Structural Estimation and Comparison

  • Melecky, Martin

This paper estimates the structural model of Linde et al. (2008) using data for Macedonia and Slovakia. A comparison of the estimated model parameters suggest that, in Slovakia, the output gap is less sensitive to real interest rate movements and prices experience greater inertia. The estimated monetary policy reaction functions present Macedonia and Slovakia as inflation targeters, with Macedonia as the more conservative one, despite its officially applied exchange rate targeting regime. The differences in estimated parameters imply differing transmission mechanisms for Macedonia and Slovakia. Consequently, the variance of domestic variables in Slovakia is most influenced by monetary policy shocks, while there is no single dominating shock explaining the volatility of Macedonia’s macroeconomic variables. The exchange rate shock, the monetary policy shock and the demand shock are jointly important in determining the volatility of Macedonia’s variables. The model simulations indicate that Macedonia experiences lower output gap and inflation volatility than Slovakia. This comes, nevertheless, at the cost of higher interest rate and real exchange rate volatility in Macedonia, which could be an indication of more volatile financial markets.

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Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 19863.

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Date of creation: Jan 2010
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Handle: RePEc:pra:mprapa:19863
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  1. Thomas Lubik & Frank Schorfheide, 2003. "Do Central Banks Respond to Exchange Rate Movements? A Structural Investigation," Economics Working Paper Archive 505, The Johns Hopkins University,Department of Economics.
  2. Sims, Christopher A, 2002. "Solving Linear Rational Expectations Models," Computational Economics, Society for Computational Economics, vol. 20(1-2), pages 1-20, October.
  3. Melecky, Martin & Najdov, Evgenij, 2008. "Comparing Constraints to Economic Stabilization in Macedonia and Slovakia: Macro Estimates with Micro Narratives," MPRA Paper 9786, University Library of Munich, Germany.
  4. Andrew B. Abel, . "Asset Prices Under Habit Formation and Catching Up With the Jones," Rodney L. White Center for Financial Research Working Papers 1-90, Wharton School Rodney L. White Center for Financial Research.
  5. Svensson, Lars E. O., 2000. "Open-economy inflation targeting," Journal of International Economics, Elsevier, vol. 50(1), pages 155-183, February.
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  12. Borek Vasícek, 2009. "Inflation dynamics and the New Keynesian Phillips curve in EU-4," Working Papers wpdea0912, Department of Applied Economics at Universitat Autonoma of Barcelona.
  13. Alejandro Justiniano & Bruce Preston, 2010. "Monetary policy and uncertainty in an empirical small open-economy model," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 25(1), pages 93-128.
  14. Benigno, Gianluca & Benigno, Pierpaolo, 2003. "Designing targeting rules for international monetary policy cooperation," Working Paper Series 0279, European Central Bank.
  15. Ricardo Caballero & Kevin Cowan, 2006. "Financial Integration Without the Volatility," Working Papers Central Bank of Chile 387, Central Bank of Chile.
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  17. Gianluca Benigno & Pierpaolo Benigno & Fabio Ghironi, 2000. "Interest Rate Rules for Fixed Exchange Rate Regimes," Boston College Working Papers in Economics 468, Boston College Department of Economics, revised 13 Oct 2003.
  18. Adolfson, Malin, 2001. "Monetary Policy with Incomplete Exchange Rate Pass-Through," SSE/EFI Working Paper Series in Economics and Finance 476, Stockholm School of Economics.
  19. Daniel O. Beltran & David Draper, 2008. "Estimating the parameters of a small open economy DSGE model: identifiability and inferential validity," International Finance Discussion Papers 955, Board of Governors of the Federal Reserve System (U.S.).
  20. Adolfson, Malin & Laséen, Stefan & Lindé, Jesper & Villani, Mattias, 2008. "Empirical Properties Of Closed- And Open-Economy Dsge Models Of The Euro Area," Macroeconomic Dynamics, Cambridge University Press, vol. 12(S1), pages 2-19, April.
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