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<p>This paper has adopted a Bayesian FAVAR approach to examine the monetary transmission mechanism in North Macedonia. The model is based on a broad data set that encompasses 140 monthly time series spanning between January 2010 and January 2019. In particular, the impact of policy on bank portfolio variables, and the impact of policy on economic activity variables have been evaluated. Our findings show that monetary tightening, causes a fall in output, inflation rate, employment, bank lending, the stock of government securities held by banks, and equity prices. On the other hand, it increases short-term money market rates, lending rates, deposits, and only in the immediate aftermath of the key policy rate rise, the share of non-performing loans in the loan portfolio. The study is expected to provide useful input to monetary policy implementation in North Macedonia. The study as well enriches the literature in this domain by discussing the challenges facing monetary authorities of small open economies with fixed exchange rate regimes in understanding how their policy instrument work through the economy.</p>
</abstract>

This paper has adopted a Bayesian FAVAR approach to examine the monetary transmission mechanism in North Macedonia. The model is based on a broad data set that encompasses 140 monthly time series spanning between January 2010 and January 2019. In particular, the impact of policy on bank portfolio variables, and the impact of policy on economic activity variables have been evaluated. Our findings show that monetary tightening, causes a fall in output, inflation rate, employment, bank lending, the stock of government securities held by banks, and equity prices. On the other hand, it increases short-term money market rates, lending rates, deposits, and only in the immediate aftermath of the key policy rate rise, the share of non-performing loans in the loan portfolio. The study is expected to provide useful input to monetary policy implementation in North Macedonia. The study as well enriches the literature in this domain by discussing the challenges facing monetary authorities of small open economies with fixed exchange rate regimes in understanding how their policy instrument work through the economy.

Evaluating Monetary Policy Effectiveness in North Macedonia: Evidence from a Bayesian Favar Framework

Senior Advisor, Monetary Policy and Research Department National Bank of the Republic of North Macedonia

Teaching and research assistant, Department of Foreign Trade

Faculty of Economics – Skopje, Ss. Cyril and Methodius University in Skopje

Analyst, Monetary Policy and Research Department National Bank of the Republic of North Macedonia

South East European Journal of Economics and Business

This work is licensed under the Creative Commons Attribution-NonCommercial-NoDerivatives 4.0 International License.

This paper has adopted a Bayesian FAVAR approach to examine the monetary transmission mechanism in North Macedonia. The model is based on a broad data set that...

Evaluating Monetary Policy Effectiveness in North Macedonia: Evidence from a Bayesian Favar Framework

Publicado en línea: 23 dic 2022

Páginas: 67 - 82

DOI: https://doi.org/10.2478/jeb-2022-0015

Palabras clave
Monetary transmission mechanism, FAVAR, Bayesian estimation, Monetary policy

© 2022 Magdalena Petrovska et al., published by Sciendo

This work is licensed under the Creative Commons Attribution-NonCommercial-NoDerivatives 4.0 International License.

Evaluating Monetary Policy Effectiveness in North Macedonia: Evidence from a Bayesian Favar Framework

Publicado en línea: 23 dic 2022

Páginas: 67 - 82

DOI: https://doi.org/10.2478/jeb-2022-0015

Palabras claveMonetary transmission mechanism, FAVAR, Bayesian estimation, Monetary policy

© 2022 Magdalena Petrovska et al., published by Sciendo

This work is licensed under the Creative Commons Attribution-NonCommercial-NoDerivatives 4.0 International License.

Palabras clave
Monetary transmission mechanism, FAVAR, Bayesian estimation, Monetary policy