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

37 Pages Posted: 19 Aug 2011 Last revised: 19 May 2013

See all articles by Besnik Fetai

Besnik Fetai

Southeast European University

Date Written: April 1, 2011

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.

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

JEL Classification: E44, E55, E62, E77

Suggested Citation

Fetai, Besnik, Exchange Rate Pass-Through in Transition Economies: The Case of the Republic of Macedonia (April 1, 2011). William Davidson Institute Working Paper No. 1014. Available at SSRN: https://ssrn.com/abstract=1912042 or http://dx.doi.org/10.2139/ssrn.1912042

Besnik Fetai (Contact Author)

Southeast European University ( email )

Ilindenska bb, 1200
Tetovo
Macedonia

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