Comparing Constraints to Economic Stabilization in Macedonia and Slovakia: Macro Estimates with Micro Narratives

This paper re-emphasizes the link from structural policies to enhanced macroeconomic stabilization using a small structural model estimated on quarterly data for Macedonia and Slovakia over 1995-2007. The success of macroeconomic stabilization, typically in hands of monetary policy, is not only determined by a suitable choice of the nominal anchor, which shapes the reaction function of monetary policy, but also the constraints within which the monetary policy strives to achieve its objectives. The key attributes of the constraints to macroeconomic stabilization are economic rigidities and structural shocks. By benchmarking the estimated economic rigidities and structural shocks faced by Macedonia to those faced by Slovakia, we find that Macedonia has relatively weaker transmission mechanisms of monetary policy, higher output rigidity, a lower exchange rate pass-through, and faces larger external shocks. For Macedonia, these relatively higher constraints on monetary policy together with the chosen exchange rate anchor result in higher output and inflation volatility relative to Slovakia. Hence, it appears that small open economies with stronger economic rigidities should apply monetary policy regimes that allow for more flexible adjustments in external relative prices to enhance their macroeconomic stability.

Comparing constraints to economic stabilization in Macedonia and Slovakia: macro estimates with micro narratives

This paper re-emphasizes the link from structural policies to enhanced macroeconomic stabilization using a small structural model estimated on quarterly data for Macedonia and Slovakia over 1995-2007. The success of macroeconomic stabilization, typically in the hands of monetary policy, is not only determined by a suitable choice of the nominal anchor, which shapes the reaction function of monetary policy, but also the constraints within which the monetary policy strives to achieve its objectives. The key attributes of the constraints to macroeconomic stabilization are economic rigidities and structural shocks. By benchmarking the estimated economic rigidities and structural shocks faced by Macedonia to those faced by Slovakia, the authors find that Macedonia has relatively weaker transmission mechanisms of monetary policy, higher output rigidity, and a lower exchange rate pass-through, and faces larger external shocks. For Macedonia, these relatively higher constraints on monetary policy together with the chosen exchange rate anchor result in greater output and inflation volatility relative to Slovakia. Hence, it appears that small, open economies with stronger economic rigidities should apply monetary policy regimes that allow for more flexible adjustments in external relative prices to enhance their macroeconomic stability.Currencies and Exchange Rates,Economic Theory&Research,Debt Markets,Economic Stabilization,Emerging Markets

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

exchange rate, pass-through effect, SVAR and VECM

Macroeconomic analysis of trade in some CEE countries

The research in this paper is focus on macroeconomic analysis of trade and other relevant indicator for real economy such as government net debt, exchange rate, interest rate, and especially the correlation between trade and growth. Today is widely accepted that openness of counties have important role for economic performance, therefore the investigation of trade is challenge for economists of small developing countries. The mail goal in this paper is theoretical analysis of some macroeconomic indicator as a factor of growth and empirical investigation of trade in some CEE countries.Macroeconomics, CEE countries, trade, exchange rate, PPP, inflation

THE ROLE OF THE FOREIGN CAPITAL IN THE INTEGRATION PROCESS OF REPUBLIC OF MACEDONIA

Foreign capital has significant role for every national economy, regardless of its level of development. For the developed countries it is necessary to support sustainable development. For the developing countries, it’s used to increase accumulation and rate of investments to create conditions for more intensive economic growth. For the transition countries, it’s useful to carry out the reforms and cross to open economy, to cross the past long term problems and to create conditions for stable and continuous growth of GDP, as well as integration in world economy. In accordance with low level of accumulation and rate of development, Macedonia as a transition country has a very big need for foreign capital. When we talk about the foreign capital and its need and significance for the Macedonian economy, on the first place we have in mind the foreign direct investments, that result by the great number of externalizes produced by FDI for the national economy. But, also credit and loan as traditional form of transfer of capital in international economic relations, it will be useful for the growth only if it is at the reasonable level (in regard of the national external debt) from one side, and if its use in the development of a certain economy is efficient, from other side.Development of the national economy; Foreign capital; Credits and loans; Foreign direct investments.

Investors’ behaviour in regard to company earnings announcements during the recession period: evidence from the Macedonian stock exchange

The study investigates the reaction of investors to annual earnings releases as reflected in the volume and price movements of common stocks during a recession. We provide an apparent example where investors did not react to firm-specific positive earnings announcements. Event methodology is employed, and the returns in an event window, defined conventionally as the day before to two days after a firm-specific public earnings announcement, are not abnormal. The volume of trade in the event window is not atypical either. The psychological impact on the investors was such that fear could not be alleviated by the good news and good financial results

Fiscal adjustment and contingent government liabilities : case studies of the Czech Republic and Macedonia

To control the expansion of government contingent liabilities and reduce fiscal vulnerability, one must be able to identify and measure them. The authors discuss how this may be done and demonstrate how the assessment of fiscal adjustment may change substantially when a broader picture of government liabilities is included. They base their analysis on experience in analyzing fiscal adjustment in the Czech Republic and Macedonia. Their work demonstrates the importance of including contingent liabilities when analyzing fiscal sustainability. To the extent that explicit expenditures are shifted off-budget or replaced by guarantees, the achieved improvement in fiscal balances is overstated. For the Czech Republic, adjustment may have been overstated by some 3 to 4 percent of annual GDP. A stabilization program accompanied by a build-up of contingent liabilities, particularly state guarantees and obligations to cover liabilities emerging from directed credit, may not be sustainable. In Macedonia, the present fiscal equilibrium may be temporary because the stock of existing contingent liabilities could add 2 to 4 percent of GDP to future deficits. And methods used to reduce the"traditional"deficit are unlikely to be sustainable without further modification. The authors conclude that governments: 1) must find better ways to identify and evaluate contingent liabilities arising from the banking system, nonbanking financial institutions, public enterprises, or the contingent and direct liabilities of subnational governments; 2) need to better manage their risks--for example, building adequate reserve funds and hedging risk, where possible; and 3) should examine the implications of the bias toward adding contingent liabilities and develop administrative reform as part of analyzing budget management.Banks&Banking Reform,Payment Systems&Infrastructure,International Terrorism&Counterterrorism,Insurance&Risk Mitigation,Environmental Economics&Policies,Banks&Banking Reform,Insurance&Risk Mitigation,National Governance,Environmental Economics&Policies,Financial Crisis Management&Restructuring

HOW DO PARLIAMENTARY ELECTIONS AFFECT STOCK MARKET VOLATILITY? EXAMPLE FROM THE REPUBLIC OF MACEDONIA

The main aim of this research is to examine the effect that political elections have on stock prices on the Macedonian Stock Exchange Index MBI 10. Our paper strains to imply the existence of problems due to political uncertainties of the efficient market hypothesis. The methodology used for the research is a simple generalized autoregressive conditional heteroscedasticity GARCH (1, 1) model. Also, to control if political uncertainty before the elections influences the return of MBI 10, a dummy variable (D60) is added. In addition, Wald test is applied. When the dummy variable is included in the model, the level of significance is 5%, meaning that the 60-day period before the elections is important for the stock exchange market. Moreover, we find that that past innovations impact MBI 10 asymmetrically. On the basis of a political regime that has two main political parties, this paper finds that the conditional mean of the stock market index is affected by the political uncertainty. The results imply that the parliamentary elections are significant, thus they do impact the Macedonian Stock Exchange