Melecky, Martin and Najdov, Evgenij (2008): Comparing Constraints to Economic Stabilization in Macedonia and Slovakia: Macro Estimates with Micro Narratives.
Download (2MB) | Preview
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.
|Item Type:||MPRA Paper|
|Original Title:||Comparing Constraints to Economic Stabilization in Macedonia and Slovakia: Macro Estimates with Micro Narratives|
|Subjects:||E - Macroeconomics and Monetary Economics > E3 - Prices, Business Fluctuations, and Cycles > E30 - General
E - Macroeconomics and Monetary Economics > E5 - Monetary Policy, Central Banking, and the Supply of Money and Credit > E58 - Central Banks and Their Policies
|Depositing User:||Martin Melecky|
|Date Deposited:||01. Aug 2008 11:29|
|Last Modified:||14. Feb 2013 07:15|
An, S., Schorfheide, F. (2005). Bayesian Analysis of DSGE Models. Discussion Paper 5207, Centre for Economic Policy Research.
Barro, R.J. (1974). Are Government Bonds Net Wealth? Journal of Political Economy 6, vol. 82 (Nov. – Dec), 1095-1117.
Benigno, G., Benigno, P. (2003). Designing Targeting Rules for International Monetary Policy Cooperation. Journal of Monetary Economics vol. 53(3), 473-506.
Benigno, G., Benigno, P., Ghironi, F. (2007). Interest Rate Rules for Fixed Exchange Rate Regimes. Journal of Economic Dynamics & Control 31, 2196-2211.
Briotti, G.M. (2005). Economic Reactions to Public Finance Consolidation: a Survey of the Literature. European Central Bank Occasional Paper No. 38, (Oct.).
Buncic, D., Melecky, M. (2008). An Estimated New Keynesian Policy Model for Australia. Economic Record 264, vol. 84, 1-16.
Chinn, M.D., Meredith, G. (2004). Monetary Policy and Long-Horizon Uncovered Interest Parity. IMF Staff Papers 51, 409.430.
Christiano, L. J., Eichenbaum, M., Evans, C. (2001). Nominal Rigidities and the Dynamic Effects of a Shock to Monetary Policy. Working Paper 01-07, Federal Reserve Bank of Cleveland.
Clarida, R., Gali, J., Gertler, M. (2001). Optimal Monetary Policy in Open versus Closed Economies: An Integrated Approach. American Economic Review 91, 248–52.
Clarida, R., Gali, J. and Gertler, M. (2002). A Simple Framework for International Monetary Policy Analysis. Journal of Monetary Economics 49, 879–904.
EBRD (2007). Transition Report 2007. European Bank for Restructuring and Development, London.
Ferreiraa, A.L., León-Ledesma, M.A. (2007). Does the Real Interest Parity Hypothesis Hold? Evidence for Developed and Emerging Markets. Journal of International Money and Finance 3, Vol. 26, 364-382.
Fuhrer, J., Moore, G. (1995). Inflation Persistence. Quarterly Journal of Economics 110 (1), 127-159.
Galí, J., Gertler, M. (1999). Inflation Dynamics: A Structural Econometric Analysis. Journal of Monetary Economics 44, 195–222.
Galí, J., López-Salido, J.D., Vallés, J. (2007). Understanding the Effects of Government Spending on Consumption. Journal of the European Economic Association vol. 5(1), 227-270.
Giordani, P. (2004). Evaluating New-Keynesian Models of a Small Open Economy. Oxford Bulletin of Economics and Statistics 66 (Supplement), 713–733.
Iradian, G. (2007). Rapid Growth in Transition Economies: Panel Regression Approach. IMF Working Paper 07/170.
Johansen, S. (2005). What is the price of Maximum Likelihood. Paper presented to the Model Evaluation Conference, Oslo, May 2005.
Kreinin, M.E. (1973). Disaggregated Import Demand Functions: Further Results. Southern Economic Journal 1, vol. 40 (Jul.), 19-25.
Mark, N.C., Moh, Y.K. (2001). What do Interest-Rate Differentials Tell us about the Exchange Rate? Manuscript, Ohio State University.
Melecky, M. (2008). A Structural Investigation of Third-Currency Shocks to Bilateral Exchange Rates. International Finance 1, vol.11, 19-48.
Miroudut S., Pinali, E., Sauter, N. (2007). The Impact of Pro-Competitive Reforms in Developing Countries. OECD Trade Policy Working Paper no.54.
Monacelli, T. (2005). Monetary Policy in a Low Pass-Through Environment. Journal of Money, Credit and Banking 37, 1047.1066.
Sims, C.A. (2002). Solving Linear Rational Expectations Models. Computational Economics 20, 1–20.
Svensson, L.E.O. (2000). Open-Economy Inflation Targeting. Journal of International Economics 50, 155-183.
Taylor, J.B. (1993). Discretion versus Policy Rules in Practice. Carnegie-Rochester Conference Series on Public Policy 39, 195-214.
World Bank (2005). Macedonia: Poverty Assessment 2002-2003. World Bank, Washington, DC.