RECONSIDERING MONETARY POLICY: EXAMINATION OF THE RELATIONSHIP BETWEEN INTEREST RATE AND NOMINAL GDP GROWTH IN NORTH MACEDONIA

Dashmir SAITI, Borche TRENOVSKI

Abstract

The subject of examination is the impact of short-term and long-term interest rates on nominal GDP in the period from 2004 to 2021 in the Republic of North Macedonia. The research is based on descriptive statistics, analysis of correlations between GDP and different periods of interest rates at the moment (t) and periods (t+1 to t+4) on the one hand and the other hand (t-1 to t-4), the tests for stationarity and cointegration, as well as evaluation of the VECM model. Additionally, based on the estimated VECM model, the Granger causality test was conducted, as well as the variance decomposition and impulse response function of GDP were calculated for all endogenous variables. The evaluated VECM model, and the equations within it, are statistically significant, exhibits a good fit, and the obtained results are stable and reliable. The results for North Macedonia in the analyzed period suggest that long-term and short-term interest rates are negatively correlated with nominal GDP and are in line with economic theory and empirical literature. Interest rates on treasury bills (short-term interest rates) have a statistically significant and negative impact on GDP in the long term (at a statistical significance level of 5%), while in the short term, they have a causal relationship with economic growth at a 10% statistical significance level. Interest rates on government bonds (long-term interest rates) do not have an impact on GDP in the short and long term.

Pages: 71 - 83