Discussion Paper

No. 2007-37 | August 08, 2007
Real Exchange Rate Dynamics in Macedonia: Old Wisdoms and New Insights

Abstract

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 non-tradable component of tradable prices.

Paper submitted to the special issue "Recent Developments in International Money and Finance" edited by Ronald MacDonald

JEL Classification

E31 F31 O11 P17

Cite As

Jane Bogoev, Sultanija Bojceva Terzijan, Balázs Égert, and Magdalena Petrovska (2007). Real Exchange Rate Dynamics in Macedonia: Old Wisdoms and New Insights. Economics Discussion Papers, No 2007-37, Kiel Institute for the World Economy. http://www.economics-ejournal.org/economics/discussionpapers/2007-37

Assessment



Comments and Questions


Anonymous - Referee Report
September 21, 2007 - 08:45

see attached file


Balázs Égert - Reply to Referee Report
October 30, 2007 - 08:49

see attached file


Anonymous - Referee Report
December 18, 2007 - 16:35

see attached file


Balázs Égert - Reply to Referee Report 2
January 07, 2008 - 15:25

see attached file