Macroeconomic Implications of Exchange Rate Regime: The Case of Macedonia

154 Pages Posted: 10 Dec 2007

See all articles by Marjan Petreski

Marjan Petreski

University of American college - Skopje - School of Business Economics and Management

Date Written: March 2007

Abstract

The aim of this paper is to acknowledge macroeconomic performance effects of different exchange rate regimes. Principally, regime's effects on inflation and growth are comprehensively discussed and examined. Literature acknowledged that regime's pegging contributes to lowering inflation and stabilizing the economy. On the other hand, regime's effect on growth is vague and usually draws upon other circumstances in particular country/ies.

Using monthly data for the macro-variables in FYR Macedonia in the period April 1992 - June 2006, this paper employs VAR methodology to test the causal relationships between exchange rate regime on one hand, and inflation and growth on the other. Key findings from the research as to the inflation conform to already conceded linkage regime - inflation. That is, FYR Macedonia exhibited 18% lower inflation per year under a fixed peg than it would have experienced under some more flexible alternative. Yet, findings for growth showed that peg harmed FYR Macedonian economy and it exhibited 2.17% lower growth per year than it would have achieved under some more flexible option of the exchange rate.

Keywords: exchange rate regime, Macedonia, macroeconomic effects, pegged rate

JEL Classification: E50

Suggested Citation

Petreski, Marjan, Macroeconomic Implications of Exchange Rate Regime: The Case of Macedonia (March 2007). Available at SSRN: https://ssrn.com/abstract=989386 or http://dx.doi.org/10.2139/ssrn.989386

Marjan Petreski (Contact Author)

University of American college - Skopje - School of Business Economics and Management ( email )

Skopje, 1000
Macedonia

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