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Trade and fiscal imbalances in Southeastern Europe: Can fiscal devaluation help?

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  • Vukšić, Goran
  • Holzner, Mario

Abstract

We examine the need, potential and likely effects of fiscal devaluation for a group of seven economies in Southeastern Europe. All the countries face external trade imbalances and most of them also experience large or growing fiscal problems. We conclude that fiscal devaluation could be a useful instrument to help these countries improve their trade balances without (further) deteriorating their fiscal positions. The results of our simulations show that a budget neutral fiscal devaluation in the amount of 1 percent of gross value added could yield short-run improvements in trade balances ranging from 0.56 to 0.94 percentage points of (initial) gross value added. Simultaneously, this is expected to have a positive impact on output as well, which should grow at rates between 0.15 and 0.25 percent.

Suggested Citation

  • Vukšić, Goran & Holzner, Mario, 2016. "Trade and fiscal imbalances in Southeastern Europe: Can fiscal devaluation help?," Economic Systems, Elsevier, vol. 40(4), pages 568-581.
    • Handle: RePEc:eee:ecosys:v:40:y:2016:i:4:p:568-581
    DOI: 10.1016/j.ecosys.2016.01.004
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    More about this item

    Keywords

    Fiscal devaluation; Partial equilibrium model simulation; Southeastern Europe;
    All these keywords.

    JEL classification:

    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy; Modern Monetary Theory
    • F17 - International Economics - - Trade - - - Trade Forecasting and Simulation
    • F47 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Forecasting and Simulation: Models and Applications

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