Arguments for and Against Retaining Exchange Rate Regime: An Empirical Analysis for Republic of Macedonia

Abstract

The selection and management of the exchange rate regime are an important aspect for an economy in order to preserve competitiveness, macroeconomic stability and growth. The selection of a particular exchange rate regime which is consistent with the economic interests of the country depends on various factors. Therefore , there is no single exchange rate regime which is perfect and suitable for all countries. The choice of a range of regimes depend of relative weight that arises from different factors. The appropriate exchange rate regime will be modified over time according changes in country’s circumstances. Taking in view the case of Macedonia and the aspiration to be part of EU, Exchange rate regime can improve the situation of Macedonia only if the access to a large extent makes Macedonia location from which foreign investors can serve to the EU market. Also with the support of estimations, in this paper we showed that in a small and open economy such as Macedonia, using the exchange rate as an instrument could be realized the opportunity for growth of export performances, increasing aggregate demand and increasing economic growth, thus investigating the the arguments for and against retaining exchange rate regime which was the focus of this paper.In this paper we focus on Republic of Macedonia, as a small and open economy, i.e. the arguments for and against retaining exchange rate regime.(The last sentence should be deleted in my opinion its already mention in the sentence before).