• Marjan Nikolov President of CEA Faculty for Business and Economics,
Keywords: Key words, Interest rates, capital account openness, expectations, exchange market pressure Introduction


Macedonia is a small and open economy and its interest rate policy is very much linked to its exchange rate policy. The more integrated it became with the international financial market the more the interest rate policy will be dependent on the exchange rate regime. In accordance with the uncovered interest rate parity, the more open the economy is the domestic interest rate should be converging to the Euro zone interest rate. If the difference, i.e. the parity spread, is high in an environment of integrated financial sector and Macedonia is still experiencing high interest rates, then the differential may be explained as a premium for the expectation of future depreciation and/or devaluation of the Macedonian Denar. Explanation might be that there exist a misalignment within the  fixed  exchange  rate  regime  in  Macedonia  thus,  creating  incentives  for  the  market  to  expect depreciation/devaluation. The type of expectation (whether they are rational or adaptive) is very important, as shown in this paper as well as the degree of openness of capital account.

Author Biography

Marjan Nikolov, President of CEA Faculty for Business and Economics,
President of CEALecturer


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