Macroeconomic Drivers of Economic Stability: Evidence from North Macedonia

This paper investigates the macroeconomic drivers of economic stability in North Macedonia by applying a time series econometric framework based on Vector Autoregression (VAR) and Granger causality analysis, covering the period from 2000 to 2023. Key variables include GDP growth, inflation, money supply (M1), interest rate, unemployment, government budget balance, and current account balance. After testing for stationarity using the Augmented Dickey-Fuller (ADF) test, a VAR model with two lags was estimated, followed by Granger causality tests to identify predictive linkages.

The results reveal dynamic interdependencies, showing that monetary aggregates (M1) and fiscal balances significantly influence both GDP and inflation, underscoring the critical role of policy levers. Moreover, labor market conditions and external balances contribute to short-run macroeconomic outcomes. Granger causality tests highlight money supply as a leading indicator, while interest rates show responsiveness to inflation and unemployment, consistent with the Taylor Rule. These findings offer valuable insights into the policy transmission mechanism and provide a basis for improved economic forecasting and macroeconomic management in small open economies.