THE EFFECTS OF EXCHANGE RATE ON ECONOMIC GROWTH IN THE REPUBLIC OF MACEDONIA

Nasir Selimi, and Valdrina Selimi
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Nasir Selimi,: Faculty of Business and Economics,South-East European University, Ilindenska 335, 1200 Tetovo, Macedonia
Valdrina Selimi: Faculty of Business and Economics,South-East European University, Ilindenska 335, 1200 Tetovo, Macedonia

EcoForum, 2017, vol. 6, issue 3, 8

Abstract: The purpose of this paper is to analyse empirically the effects of exchange rate on economic growth in the FYROM. We apply the OLS approach to estimate the regression equation and present the model that analyzes the impacts of exchange rate on economic growth. As the dependent variable is considered real GDP as representatives of economic growth, and as independent variables besides the variable of real exchange rate, are reviewed a range of other macroeconomic variables like consumer price index, trade openness, the monetary aggregate (M2), current account balance and real interest rate. Also in the model is incorporated an artificial variable (dummy) to explore the effects of the global financial crises. Further, it is made a long-term analysis of the linkage between real exchange rate and economic growth, using dynamic VAR model and Granger causality test. The empirical results indicate that real exchange rate positively affects the economic growth. Thus, we found out relevant argument that support the current regime i.e. fix regime of the exchange rate which ensures macroeconomic stability of the country. Taking into consideration the euroization, exchange rate pass through effect and credibility, introducing a float exchange regime is likely to induce more costs than benefits for the economy, as the global financial crisis of 2008 proved that still country face the lack of complete credibility of the national currency, monetary and fiscal policies. This is one of a rare attempt of estimating the effects of exchange rate on economic growth in FYROM using the VAR model and Granger causality test. Although the VAR model and Granger causality test performs well, the results should be interpreted with caution.

Keywords: Exchange rate; economic growth; OLS; Granger causality test (search for similar items in EconPapers)
Date: 2017
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Citations: View citations in EconPapers (5)

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