Corporate sector deleveraging in Macedonia in the aftermath of the crisis: Has it happened at all?

The study explores the corporate sector debt in the Macedonian economy. It starts by a narrative scrutiny of its evolution using micro and macro data, and proceeds with a further analysis of its main components. The simple data inspection provides no evidence that corporate sector in Macedonia deleveraged after the burst of the global financial and economic crisis. The inference changes somewhat, once the intercompany debt of new foreign companies is controlled for. Without this type of debt, there are signs of downward adjustment of the corporate sector debt. Given this, we proceed with a more formal investigation, to explore the link between corporate debt and GDP, and assess where the corporate debt stands in terms of its equilibrium. Our findings suggest that shocks to the corporate debt cycle affect the economic cycle. In addition, the estimates reveal that the current corporate domestic debt level exceeds the equilibrium level for a considerable period, though the deviation is not large. The findings provide two important notions for the policy makers. First, corporate debt cycle should be an important variable in the policy function, and excessive leverage/deleverage should be detected in a timely manner. Second, as the domestic corporate debt does not exceed the equilibrium level at a large magnitude, it implicitly reveals that the current policy stance is adequate. Yet, given the long time in which the debt level exceeds the fundamentals somewhat, a vigilance is needed in this respect, as well

Overview of the Macedonian Policy Analysis Model (MAKPAM)

This paper describes the Macedonian Policy Analysis Model (MAKPAM), which is used at the National Bank of the Republic of Macedonia (NBRM) for medium term macroeconomic forecasting and policy analysis. The MAKPAM is a medium scale, New Keynesian gap model that incorporates the key characteristics of the Macedonian economy: a small open economy with a fixed exchange rate regime. This model outlines the transmission mechanism of the monetary policy in the Macedonian economy, and it helps to quantify the reaction of the economy to various shocks. Since 2008, the MAKPAM model has gradually become an important block of the macroeconomic forecasting system of the NBRM. The model is therefore an important analytic tool for supporting the monetary policy decision-making of the NBRM

Real Exchange Rate Dynamics in Macedonia: Old Wisdoms and New Insights

The ambition of this paper is to analyse real exchange rate dynamics in Macedonia relying on a highly disaggregated dataset. We complement the indirect evidence reported in Loko and Tuladhar (2005) and we provide direct evidence on the irrelevance of the Balassa-Samuelson effect for overall inflation via service prices in the CPI. Furthermore, we estimate variants of the BEER model. We show that alternative econometric techniques and data definitions bear an impact on the robustness of the estimation results. Overall, productivity, government consumption and the openness variables were found to be fairly robust in terms of sign and size. An increase/decrease in the productivity variables is associated with an appreciation/depreciation of the real effective exchange rate. Given that the B-S effect admittedly has a very limited role to play through nontradable prices in the CPI, this relationship could be explained by the (inverse) quality effect proposed by Loko and Tuladhar and, possibly in addition to that, by the nontradable component of tradable prices

Real exchange rate dynamics in Macedonia: Old wisdoms and new insights

The ambition of this paper is to analyse real exchange rate dynamics in Macedonia relying on a highly disaggregated dataset. We complement the indirect evidence reported in Loko and Tuladhar (2005) and we provide direct evidence on the irrelevance of the Balassa-Samuelson effect for overall inflation via service prices in the CPI. Furthermore, we estimate variants of the BEER model. We show that alternative econometric techniques and data definitions bear an impact on the robustness of the estimation results. Overall, productivity, government consumption and the openness variables were found to be fairly robust in terms of sign and size. An increase/decrease in the productivity variables is associated with an appreciation/depreciation of the real effective exchange rate. Given that the B-S effect admittedly has a very limited role to play through nontradable prices in the CPI, this relationship could be explained by the (inverse) quality effect proposed by Loko and Tuladhar and, possibly in addition to that, by the nontradable component of tradable prices. --real exchange rate,Balassa-Samuelson,Macedonia