Impact of International Shocks on North Macedonia and the Western Balkans: Republic of North Macedonia

The Western Balkan economies have faced numerous external shocks in recent years, while simultaneously becoming more integrated with the European Union. This paper employs a global vector autoregressive (GVAR) model to estimate the spillovers of real, financial, monetary, and global commodity price shocks across all countries in the region. The findings reveal that real shocks from the euro area significantly impact economic activity and trade. Financial shocks' effects are moderated by the level of financial depth and integration. Both conventional and unconventional monetary policy shocks influence economic activity and inflation, depending on the degree of monetary autonomy. Additionally, global energy commodity price shocks are identified as major drivers of inflation. North Macedonia in particular experiences the most substantial spillovers through industrial activity and trade, due to its high integration into European global value chains.