UNDERSTANDING INFLATION DRIVERS IN NORTH MACEDONIA: AN ECONOMETRIC ANALYSIS

Abstract

Inflation plays a key role in a country’s economy, especially in terms of its economic stability and growth. Understanding its determinants is essential for formulating effective policies. This paper analyzes the factors influencing the rate of inflation in the Republic of North Macedonia in the period 20022023. The objective is to identify and assess the impact of the money supply (M2), the real effective exchange rate of the Macedonian denar (MKD), and the unemployment rate (independent variables) on the inflation rate (dependent variable) in the analyzed period. In the paper, a statistical analysis was performed that identified the possible correlations between the dependent variable and the three independent variables. Also, econometric modeling and evaluation of the model was performed using the ordinary least squares (OLS) linear regression method. The results of the research have been properly interpreted and relevant conclusions have been drawn based on that. This research is particularly useful for economists, policymakers and the Central Bank of the country, as it provides insights into inflation dynamics. Based on this information, they will be able to develop and implement appropriate monetary policies to control and manage the economy, which is crucial for achieving economic stability and growth.