The post-crisis economic recovery has been solid and broad-based due to accommodative policies, low commodity prices and large infrastructure and foreign investment. However, a prolonged period of domestic political uncertainties is beginning to impact confidence and the country's EU accession prospects. Growth should pick up in the medium term contingent on the return of political stability following parliamentary elections in December.
This Selected Issues Paper assesses Macedonia’s public debt markets and presents recommendations for their further development. Macedonia’s domestic debt market is in the early stages of development and is small by regional standards. The paper also analyzes the main causes of euroization in Macedonia. It discusses the nature of monetary policy in Macedonia where despite an exchange rate peg owing to imperfect capital mobility, there exists some degree of autonomy in the conduct of monetary policy in the short term.
In this paper we study the dynamics of inflation in Macedonia, provide three forecasting tools and draw some policy conclusions from the quantitative results. We explore three forecasting methods for inflation. We use a Dynamic Factor Model (DFM) for short-term, monthly forecasting. We also develop two quarterly models: A Vector Error Correction Model (VECM), and a New Keynesian Phillips Curve (NKPC) for a more structural model of inflation. The NKPC shows a significant effect of output gap and inflation expectations on current inflation, confirming that the expectations channel of monetary transmission mechanism is strong. In terms of forecast-error variance, we show that all three models do very well in one-period ahead forecasting.
International Monetary Fund. External Relations Dept.
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On behalf of the authorities of North Macedonia, we would like to express our sincere gratitude and appreciation to management and staff for their timely and proactive response to the request for purchase under the Rapid Financing Instrument (RFI) to help overcome the exogenous shock caused by the COVID-19 outbreak. The authorities broadly agree with the staff’s appraisal and policy advice.