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

Petrovska Magdalena (), Tonovska Jasna (), Nikolov Miso () and Sulejmani Artan ()
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Petrovska Magdalena: Senior Advisor, Monetary Policy and Research Department National Bank of the Republic of North Macedonia, Blvd Kuzman Josifovski Pitu 1; 1000 Skopje, Republic of North Macedonia
Tonovska Jasna: Teaching and research assistant, Department of Foreign Trade, Faculty of Economics – Skopje, Ss. Cyril and Methodius University in Skopje, Republic of North Macedonia
Nikolov Miso: Internal Auditor, IUTE Credit Macedonia, Republic of North Macedonia
Sulejmani Artan: Analyst, Monetary Policy and Research Department National Bank of the Republic of North Macedonia Republic of North Macedonia

South East European Journal of Economics and Business, 2022, vol. 17, issue 2, 67-82

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.

Keywords: Monetary transmission mechanism; FAVAR; Bayesian estimation; Monetary policy (search for similar items in EconPapers)
JEL-codes: E47 E52 (search for similar items in EconPapers)
Date: 2022
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Persistent link: https://EconPapers.repec.org/RePEc:vrs:seejeb:v:17:y:2022:i:2:p:67-82:n:6

DOI: 10.2478/jeb-2022-0015

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