Determinants of Inflation in North Macedonia: 2005-2022

Abstract

In this paper we analyze the determinants of inflation for a small open economy such as North Macedonia during the period 2005-2022. Using the Auto Regressive Distributed Lag (ARDL) model we find long run convergence of the inflation rate in North Macedonia, i.e. previous errors are corrected in the current period. We find the rate of this adjustment to be 1.17%. Furthermore, we do not find significant short run effects on the inflation rate in North Macedonia whereas the long run determinants of inflation which resulted as significant are: the inflation rate of EU countries, the base interest rate, the consumption to GDP ratio as well as the nominal effective exchange rate.

Keywords: inflation rate, ARDL model, convergence, North Macedonia, EU

DOI: 10.7176/EJBM/15-8-03

Publication date: April 30^th 2023