The Monetary Transmission Mechanism in Macedonia: Implications for Monetary Policy

Centre for Research on Emerging Economies Working Paper No. 02-2006

34 Pages Posted: 22 May 2014

See all articles by Fatmir Besimi

Fatmir Besimi

National Bank of the Republic of Macedonia

Geoff T. Pugh

Staffordshire University Business School, UK

Nick J. Adnett

Staffordshire University, UK

Date Written: 2006

Abstract

This paper investigates the monetary transmission mechanism in the Republic of Macedonia to better inform monetary policy, which is currently dedicated to price stability. We analyse long-run equilibrium relationships, adjustment mechanisms and short-run influences between the price level, output and transmission channels: namely, the denar-euro exchange rate; the interest rate; money supply; and - extending the literature - currency substitution. Among our findings are that exchange rate and money supply changes have stronger effects on domestic prices than interest rate changes; devaluation raises currency substitution; and currency substitution attenuates inflationary pressures. We conclude that monetary policy makers in similar economies should take currency substitution into consideration when designing monetary policy and contemplating changes in monetary regime.

Keywords: monetary policy, transmission mechanism, transition economy, euroisation

JEL Classification: E31, E58, P24, P52

Suggested Citation

Besimi, Fatmir and Pugh, Geoff T. and Adnett, Nick J., The Monetary Transmission Mechanism in Macedonia: Implications for Monetary Policy (2006). Centre for Research on Emerging Economies Working Paper No. 02-2006. Available at SSRN: https://ssrn.com/abstract=989209

Fatmir Besimi (Contact Author)

National Bank of the Republic of Macedonia ( email )

Skopje, 1000
Macedonia

Geoff T. Pugh

Staffordshire University Business School, UK ( email )

Leek Road
Stoke-on-Trent, ST4 2DF
United Kingdom
01782 204092 (Phone)

HOME PAGE: http://www.staffs.ac.uk/staff/profiles/gtp1.jsp

Nick J. Adnett

Staffordshire University, UK ( email )

United States

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