From the impossible monetary trinity towards economic depression
AbstractThe aim of the paper is to determine the interdependency of both balance of payments and fiscal deficit in the context of liberalized systems of capital flows with mainly stabile and appreciated exchange rate and their impact on the dynamics of growth of transition economies of Central and Eastern Europe with special retrospect to Croatia. In the research we used a classical econometric model for aggregated series of data of a group of transition countries, and individually for Croatia and Poland. We determine a significant regression interconnection between fiscal and balance of payments deficits for the group of transition countries, and individually for Croatia, with the exception of Poland and Eurozone. Furthermore, we explore the interdependency of these deficits with the growth rate of gross domestic product of analysed CEE countries and Croatia, where we obtain only partially significant regression results. The final conclusion of the analysis is the existence of significant inverse relationship of balance of payments and fiscal deficits of aggregates of transition economies and Croatia. Growth rates of gross domestic product loosely depend on the balance of payments deficit of groups of transition countries, which cannot be concluded for Croatia. In the case of relationship between the growth rate of gross domestic product with current budget deficits of the analyzed group of transition countries we do not obtain satisfactory significance. From the entire analysis we can conclude that the policy of reducing the balance of payments deficit with the secondary goal of reduction of budget deficit and a decrease in foreign debt, in present condition, has a pro-recessionary effect for the majority of transition countries.
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Bibliographic InfoArticle provided by University of Rijeka, Faculty of Economics in its journal Zbornik radova Ekonomskog fakulteta u Rijeci/Proceedings of Rijeka Faculty of Economics.
Volume (Year): 29 (2011)
Issue (Month): 2 ()
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More information through EDIRC
twin deficit; monetary trinity; econometric model; fixed exchange rate; currency clause; liberalized financial market; depression;
Find related papers by JEL classification:
- E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
- F31 - International Economics - - International Finance - - - Foreign Exchange
- F32 - International Economics - - International Finance - - - Current Account Adjustment; Short-term Capital Movements
- H62 - Public Economics - - National Budget, Deficit, and Debt - - - Deficit; Surplus
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Guillermo A. Calvo, 1998. "Capital Flows and Capital-Market Crises: The Simple Economics of Sudden Stops," Journal of Applied Economics, Universidad del CEMA, vol. 0, pages 35-54, November.
- Guillermo A. Calvo, 2006.
"Monetary Policy Challenges in Emerging Markets: Sudden Stop, Liability Dollarization, and Lender of Last Resort,"
Research Department Publications
4504, Inter-American Development Bank, Research Department.
- Guillermo A. Calvo, 2006. "Monetary Policy Challenges in Emerging Markets: Sudden Stop, Liability Dollarization, and Lender of Last Resort," NBER Working Papers 12788, National Bureau of Economic Research, Inc.
- Guillermo A. Calvo, 2006. "Monetary Policy Challenges in Emerging Markets: Sudden Stop, Liability Dollarization, and Lender of Last Resort," IDB Publications 6841, Inter-American Development Bank.
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