Regression Analysis between Economic Development, Inflation and Interest Rates during the Transition Period: Case of Macedonia

Numerous empirical results show that lending rates have a significant effect on economic growth while in terms of the inflation rate, we can say that it has the relative importance because in some cases it has positive impacts and in some cases it’s presented with a particularly negative impact. Interest rates and inflation are two important variables of policy-making in macroeconomics and rate changes have significant effects on economic agents' decision and have often been debate discussion by economic policymakers. This paper discusses the impact of interest rate and inflation on economic growth in the case of Macedonia, during the transition period. The data collected by the World Bank are analyzed and tested using multiple regression technique. The result of the finding revealed that there is an inverse relationship between interest rates and economic growth in Macedonia, which means that the increase in interest rates would reduce the country's GDP and a positive relationship between inflation rate and GDP. Keywords: inflation, interest rate, economy growth, gamma regression inverse link