This paper analyzes the effects of loan supply, as well as aggregate demand, aggregate supply and monetary policy shocks between 1998 and 2014 in Macedonia using a structural vector autoregression model with sign restrictions and Bayesian estimation. The main results indicate that loan supply shocks have no significant effect on loan volumes and lending rates, or on economic activity and prices. The effects of monetary policy on lending activity are fairly limited, although there is some evidence that it affects lending rates more than loan volumes. Monetary policy shocks have strong effects on inflation, while the central bank reacts strongly to adverse shocks hitting the economy. Baseline results are confirmed by several robustness checks. According to historical decomposition, the lending activity was supporting economic growth before and during the crisis, but its contribution became negative during the recovery and it was a drag on growth until the end of the period. Pre-crisis GDP growth is mostly explained by supportive monetary policy. However, the restrictive monetary policy during the crisis contributed to the fall of GDP, before becoming supportive again during the early stages of the recovery. Policy rates in recent years mostly reflect subdued lending activity and aggregate supply factors, which the central bank tries to counteract with a more accommodative policy. monetary policy, aggregate demand and aggregate supply shocks. It follows the recent literature on loan supply shocks, particularly regarding the empirical methodology. The main contribution of the paper is that it focuses on an important economic and policy issue in Macedonia, which has not been previously empirically investigated. By using Bayesian SVAR with sign restrictions, the paper avoids some of the drawbacks of classical econometric methods arising from the relatively short data series with structural and methodological breaks, which is common for transition countries. To the best of our knowledge, this is the first paper which tries to apply this technique to economic data on Macedonia.The paper starts with discussing data and methodology in Section 2. Section 3 presents baseline results. Section 4 provides robustness checks. The last section provides a conclusion.

This paper analyzes the effects of loan supply, as well as aggregate demand, aggregate supply and monetary policy shocks between 1998 and 2014 in Macedonia using a structural vector autoregression model with sign restrictions and Bayesian estimation. The main results indicate that loan supply shocks have no significant effect on loan volumes and lending rates, or on economic activity and prices. The effects of monetary policy on lending activity are fairly limited, although there is some evidence that it affects lending rates more than loan volumes. Monetary policy shocks have strong effects on inflation, while the central bank reacts strongly to adverse shocks hitting the economy. Baseline results are confirmed by several robustness checks. According to historical decomposition, the lending activity was supporting economic growth before and during the crisis, but its contribution became negative during the recovery and it was a drag on growth until the end of the period. Pre-crisis GDP growth is mostly explained