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

  • Besnik Fetai

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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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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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  1. Hubrich, Kirstin & Lütkepohl, Helmut & Saikkonen, Pentti, 1998. "A review of systemscointegration tests," SFB 373 Discussion Papers 1998,101, Humboldt University of Berlin, Interdisciplinary Research Project 373: Quantification and Simulation of Economic Processes.
  2. Fabrizio CORICELLI & Bostjan JAZBEC & Igor MASTEN, 2004. "Exchange Rate Pass-Through in Acceding Countries: The Role of Exchange Rate Regimes," Economics Working Papers ECO2004/16, European University Institute.
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  9. Andrea Brischetto & Graham Voss, 1999. "A Structural Vector Autoregression Model of Monetary Policy in Australia," RBA Research Discussion Papers rdp1999-11, Reserve Bank of Australia.
  10. Zulfiqar Hyder & Sardar Shah, 2005. "Exchange Rate Pass-Through to Domestic Prices in Pakistan," Macroeconomics 0510020, EconWPA.
  11. Eduardo Levy-Yeyati & Federico Sturzenegger, 2003. "To Float or to Fix: Evidence on the Impact of Exchange Rate Regimes on Growth," American Economic Review, American Economic Association, vol. 93(4), pages 1173-1193, September.
  12. Jonathan McCarthy, 2007. "Pass-Through of Exchange Rates and Import Prices to Domestic Inflation in Some Industrialized Economies," Eastern Economic Journal, Eastern Economic Association, vol. 33(4), pages 511-537, Fall.
  13. Sims, Christopher A. & Zha, Tao, 2006. "Does Monetary Policy Generate Recessions?," Macroeconomic Dynamics, Cambridge University Press, vol. 10(02), pages 231-272, April.
  14. Billmeier, Andreas & Bonato, Leo, 2004. "Exchange rate pass-through and monetary policy in Croatia," Journal of Comparative Economics, Elsevier, vol. 32(3), pages 426-444, September.
  15. Coricelli, Fabrizio & Jazbec, Bostjan, 2001. "Real Exchange Rate Dynamics in Transition Economies," CEPR Discussion Papers 2869, C.E.P.R. Discussion Papers.
  16. Christopher A. Sims & Tao Zha, 1995. "Error bands for impulse responses," Working Paper 95-6, Federal Reserve Bank of Atlanta.
  17. Campa, José Manuel & Goldberg, Linda S., 2004. "Exchange Rate Pass-Through into Import Prices," CEPR Discussion Papers 4391, C.E.P.R. Discussion Papers.
  18. Johansen, Soren & Juselius, Katarina, 1990. "Maximum Likelihood Estimation and Inference on Cointegration--With Applications to the Demand for Money," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 52(2), pages 169-210, May.
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