Comparing constraints to economic stabilization in Macedonia and Slovakia
Subtitle: macro estimates with micro narratives
By: Martin Melecky, Evgenij Najdov.
Contributors: Najdov, Evgenij.; World Bank.
Series: Policy research working paper -- 4691; Policy research working papers (Online) -- 4691.
Publisher: World Bank
Published: 2008
Place of publication: [Washington, D.C
Language: eng
Format: Electronic resource
Subjects: Economic stabilization -- Macedonia; Economic stabilization -- Slovakia; Macedonia -- Economic policy; Slovakia -- Economic policy
Description: "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 the 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, the authors find that Macedonia has relatively weaker transmission mechanisms of monetary policy, higher output rigidity, and 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 greater 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. "--World Bank web site.
Notes: Title from PDF file as viewed on 5/20/2009.

Includes bibliographical references.

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