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Fiscal and monetary policy effects in three South Eastern European economies

Author

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  • Goran Petrevski

    () (Saints Cyril and Methodius University)

  • Jane Bogoev
  • Dragan Tevdovski

    (Saints Cyril and Methodius University)

Abstract

Abstract This paper investigates the macroeconomic effects of monetary and fiscal policies in three South Eastern European economies: Bulgaria, Croatia and Macedonia. We employ recursive vector autoregressions in order to study the linkages among fiscal policy, monetary policy and economic activity based on quarterly data on primary cyclically adjusted balance, monetary policy indicators, inflation rate and output gap. We obtain the following main results: first, domestic economic activity exerts significant effects on inflation, provoking a strong reaction of monetary policy, especially in case of procyclical or erratic behavior of fiscal policy; second, we find evidence for the expansionary effects of fiscal consolidation since fiscal tightening leads to an increase in economic activity; third, the effects of monetary policy on output and inflation are generally as expected; fourth, monetary policy acts as a strategic substitute to tight fiscal policy, while in case of monetary tightening, fiscal authorities behave in a countercyclical manner.

Suggested Citation

  • Goran Petrevski & Jane Bogoev & Dragan Tevdovski, 2016. "Fiscal and monetary policy effects in three South Eastern European economies," Empirical Economics, Springer, vol. 50(2), pages 415-441, March.
  • Handle: RePEc:spr:empeco:v:50:y:2016:i:2:d:10.1007_s00181-015-0932-0
    DOI: 10.1007/s00181-015-0932-0
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    Citations

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    Cited by:

    1. Borce Trenovski & Biljana Tashevska, 2015. "Fiscal or monetary dominance in a small, open economy with fixed exchange rate – the case of the Republic of Macedonia," Zbornik radova Ekonomskog fakulteta u Rijeci/Proceedings of Rijeka Faculty of Economics, University of Rijeka, Faculty of Economics, vol. 33(1), pages 125-145.
    2. repec:agr:journl:v:1(618):y:2019:i:1(618):p:51-60 is not listed on IDEAS
    3. Mirdala, Rajmund & Kameník, Martin, 2017. "Effects of Fiscal Policy Shocks in CE3 Countries (TVAR Approach)," MPRA Paper 79918, University Library of Munich, Germany.
    4. Vladimir Filipovski & Taki Fiti & Borce Trenovski, 2016. "Efficiency of the Fiscal Policy and the Fiscal Multipliers – The Case of the Republic of Macedonia," Economic Studies journal, Bulgarian Academy of Sciences - Economic Research Institute, issue 1, pages 3-23.
    5. Şen, Hüseyin & Kaya, Ayşe, 2015. "The relative effectiveness of Monetary and Fiscal Policies on growth: what does long-run SVAR model tell us?," MPRA Paper 65903, University Library of Munich, Germany, revised 01 Aug 2015.
    6. Yu HSING, 2019. "Is real depreciation or more government deficit expansionary? The case of Macedonia," Theoretical and Applied Economics, Asociatia Generala a Economistilor din Romania - AGER, vol. 0(1(618), S), pages 51-60, Spring.

    More about this item

    Keywords

    Fiscal policy; Monetary policy; VAR;

    JEL classification:

    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy
    • E63 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Comparative or Joint Analysis of Fiscal and Monetary Policy; Stabilization; Treasury Policy

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