The National Bank is among the central banks that underpin the research activity and is committed to the continuous strengthening of the analytical infrastructure, thus providing research knowledge and analysis that can and should contribute more to the adequatee dimensioning of policies. That is why, one of the components within the twinning project "Strengthening the institutional capacity of the National Bank in the process of its accession to the European System of Central Banks", funded by the European Union is committed to knowledge and skills in policy analysis. Within this project, which is in its final phase, the National Bank experts, together with the expert from the Central Bank of Romania, Mr. Mihai Copaciu, were doing a research work about the relationship between real and financial cycles in the Macedonian economy, through the application of the dynamic stochastic model of general equilibrium (DSGE model) with partial euroization.

Today, within the 38th session of the Research Club, the study of Mihai Copaciu, Joana Madzoska and Mite Miteski, which is the result of this research, was presented to a number of researchers-economists from the country, as well as to university students. After the introductory speech of Vice Governor Ana Mitreska, the paper entitled "Dynamic stochastic model of general equilibrium (DSGE model) with partial euroization: the case of the Macedonian economy", the research findings and conclusions, on behalf of the authors were presented by  Mite Miteski and Joana Madzoska.

At the beginning, it was pointed out that within this project, a DSGE model that incorporates the financial frictions was established for the first time, at the same time being modified to the specifics of the Macedonian economy - fixed exchange rate and partial financial euroization. It was also emphasized that unlike the current macroeconomic models applied in the National Bank, the new model is set on a microeconomic basis, which models the relations between banks, households, enterprises, the central bank and the government. Compared to the macroeconomic model that is currently in use, it was stressed that the performance of the DSGE model is solid, which allows its further use for the policy analysis purposes, and is a ground for further upgrade.

The presented study describes in details the theoretical structure of the model, the microeconomic relationships, the estimated parameters that determine the cyclical properties of the model, as well as the methods for model evaluation (impulse-reaction functions, variance decomposition and historical decomposition of shocks).

As stated in the presentation, the model can be used for simulations through which the reaction of various variables to individual shocks can be monitored, as well as their transmission to other sectors of the economy.

Also, the conclusion that the developments in the financial sector proved to be particularly important for the macroeconomic fluctuations in the Macedonian economy were also presented.

At the end of the presentation it was pointed out that the research based on this model is relevant for policy makers because it provides a comprehensive analysis of the economic cycle in our country in the last 15 years.

The presentation of the paper incited the researchers attending the session to raise a series of relevant questions, which resulted in exchange of expert views, identifying further research challenges. The participants  pointed out that the presented paper, which is the first such study, will be an important reference for further research and analyses of the impact of developments in the financial sector on the economy and that it provides important insights for policy makers.

The next session of the Researchers' Club will be held in June.