BRIEF EMPIRICS OF INTEREST - RATE DIFFERENTIAL IN MACEDONIA

Marjan Petreski

Abstract


The aim of this paper is to empirically test the order of integration of the differential of the referent interest rates in Macedonia and Euro zone, in order to confirm or reject the hypothesis of interest-rate convergence in Macedonia. Namely, the strategy of exchange-rate pegging puts monetary policy on an autopilot which immediately shrinks domestic inflation at Euro zone's level, but is expected to lead to interest-rates convergence too. We utilize three less-known tests in the literature of series' integration: KPSS, Geweke and Porter-Hudak test and Robinson test and we find support for the hypothesis that interest rates are in a process of catching up, which implies that their
integration level is about 0.87, hence confirming that the convergence is not yet achieved, but is underway.


Keywords


interest-rate convergence, tests for fractional integration JEL classification: E43, E50

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References


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