 OPENNESS OF THE CAPITAL MARKET IN MACEDONIAJournal Articles, 2011, 43-52 Abstract: Macedonia is a small relatively open economy and its interest rate policy is very much linked to its exchange rate policy. The more integrated it became with the international financial market the more the interest rate policy will be dependent on the exchange rate regime. One reason to analyze the behavior of the interest rate level in Macedonia is the differential between the interest rates in Macedonia and the Euro zone. In accordance with the uncovered interest rate parity, the more open the economy is the domestic interest rate should be converging to the Euro zone interest rate. If the difference, i.e. the parity spread, is high in an environment of integrated financial sector and Macedonia and still experiencing high interest rates, then the differential may be explained as a premium for the expectation of future depreciation and/or devaluation of the Macedonian Denar. Explanation then might be that there exist a misalignment within the fixed exchange rate regime in Macedonia thus, creating incentives for the market to expect depreciation/devaluation. The type of expectation (whether they are rational or adaptive) is very important, as shown in this paper. Keywords: Interest rate parity; capital account; rational and adaptive expectations. (search for similar items in EconPapers) Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:cmk:journl:y:2011:p:43-52 Access Statistics for this article More articles in Journal Articles from Center For Economic Analyses Contact information at EDIRC. |
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