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Investigating the Cyclical Behavior of Fiscal Policy in the Republic of Macedonia during the Period of Transition

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Author Info

  • Anita Angelovska Bezoska

    ()
    (National Bank of the Republic of Macedonia)

  • Jane Bogoev

    (National Bank of the Republic of Macedonia)

  • Ana Mitreska

    ()
    (National Bank of the Republic of Macedonia)

  • Maja Kadievska Vojnovik

    ()
    (National Bank of the Republic of Macedonia)

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    Abstract

    The main aim of this research is to investigate the cyclical behavior of fiscal policy with respect to output gap fluctuations in the Republic of Macedonia during the period 1991-2009. We use two different fiscal policy measures: 1) the cyclically unadjusted primary budget balance and 2) the cyclically adjusted primary budget balance as a proxy indicator of the fiscal policy stance. This analysis also aims to explore whether there was a substantial change in the fiscal policy behavior prior to 1996 due to the turbulent initial period of transition and the switch in monetary policy strategy. We additionally control for other factors that also seem to have had a significant impact over the fiscal policy behavior, such as the armed conflict in 2001 and the impact of public debt as a proxy indicator of budget financing constraints. The estimated results with respect to both measures, the cyclically unadjusted and cyclically adjusted budget balance, indicate differences in the fiscal policy behavior prior to and after 1996. More precisely, the results imply that the fiscal policy behavior prior to 1996 was procyclical, whereas afterwards the fiscal policy became countercyclical. These results are robust to different measures of the output gap and different frequency of the data sets.

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    File URL: http://www.nbrm.mk/WBStorage/Files/WebBuilder_CroatianEconomicSurveyVol13No1pp57_104.pdf
    File Function: First version, 2011
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    Bibliographic Info

    Paper provided by National Bank of the Republic of Macedonia in its series Working Papers with number 2011-01.

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    Length: 48 pages
    Date of creation: 2011
    Date of revision: 2011
    Handle: RePEc:mae:wpaper:2011-01

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    Keywords: fiscal policy; cyclically adjusted balance; output gap; monetary policy change;

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