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Budgetary Discipline And Internal Devaluation – Estonian Method To Overcome The Crisis

Author

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  • Bernadeta Baran

    (Wroclaw University of Economics, Poland)

Abstract

The purpose of this article is to outline the main reasons and effects of the Estonian adjustments in response to the global financial and economic crisis. Estonia chose significant budgetary savings, in contrast with most other countries stimulating their economies by expansionary fiscal policy and leading to fiscal imbalances and growing public debts. Estonia did not carry out a devaluation of its currency, but restored competitiveness through internal devaluation. This strategy allowed Esto-nia to maintain a fixed exchange rate, fulfill the Maastricht criteria and adopt the single currency. As a result, Estonia has increased the stability of its economy, restoring and enhancing confidence among investors. At the same time, the Estoni-an strategy confirmed the existence of non-Keynesian effects – the positive econom-ic results of public spending reduction.

Suggested Citation

  • Bernadeta Baran, 2014. "Budgetary Discipline And Internal Devaluation – Estonian Method To Overcome The Crisis," Equilibrium. Quarterly Journal of Economics and Economic Policy, Institute of Economic Research, vol. 9(2), pages 9-23, June.
    • Handle: RePEc:pes:ierequ:v:9:y:2014:i:2:p:9-23
    DOI: 10.12775/EQUIL.2014.008
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    References listed on IDEAS

    as
    1. Jaroslaw Bauc, 1995. "Estonian Way to Liberal Economic System," CASE Network Studies and Analyses 0038, CASE-Center for Social and Economic Research.
    2. Miss Catriona Purfield & Mr. Christoph B. Rosenberg, 2010. "Adjustment Under a Currency Peg: Estonia, Latvia and Lithuania During the Global Financial Crisis 2008-09," IMF Working Papers 2010/213, International Monetary Fund.
    3. Mr. Andres Sutt & Mr. Basil B. Zavoiceo & Mr. Adalbert Knöbl, 2002. "The Estonian Currency Board: Its Introduction and Role in the Early Success of Estonia's Transition to a Market Economy," IMF Working Papers 2002/096, International Monetary Fund.
    4. Ms. Rina Bhattacharya, 1999. "Private Sector Consumption Behavior and Non-Keynesian Effects of Fiscal Policy," IMF Working Papers 1999/112, International Monetary Fund.
    5. Giavazzi, Francesco & Jappelli, Tullio & Pagano, Marco, 2000. "Searching for non-linear effects of fiscal policy: Evidence from industrial and developing countries," European Economic Review, Elsevier, vol. 44(7), pages 1259-1289, June.
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    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    internal devaluation; budgetary adjustments; competitiveness; crisis;
    All these keywords.

    JEL classification:

    • F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics
    • F42 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - International Policy Coordination and Transmission
    • F63 - International Economics - - Economic Impacts of Globalization - - - Economic Development
    • G01 - Financial Economics - - General - - - Financial Crises
    • H30 - Public Economics - - Fiscal Policies and Behavior of Economic Agents - - - General
    • H60 - Public Economics - - National Budget, Deficit, and Debt - - - General

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