IDEAS home Printed from https://ideas.repec.org/a/spr/trstrv/v20y2013i1p89-104.html

Assessing Monetary and Fiscal Policy Interaction in a Small Open Economy: the Case Republic of Macedonia

Author

Listed:
  • Besnik Fetai

Abstract

The aim of this paper is to analyze empirically the interaction between monetary and fiscal policy in a small open transition economies: the case the Republic of Macedonia. This paper employs SVAR methodology to examine jointly the impact monetary and fiscal policy on real GDP and prices. The result reveals that the monetary policy counteracts the effects of fiscal policy and persists until the effects of fiscal policy changes disappear. This causes a crowding out effect. In addition, the result shows that the best fiscal policy for stimulating the economy appears to be one of tax-cuts. The empirical research, in jointly analyzing fiscal and monetary policy also provides an additional, possibly interesting result. The sizes of the responses of real GDP and prices to monetary shock are not significantly reduced when fiscal shock is included into monetary SVAR. Copyright CEEUN 2013

Suggested Citation

  • Besnik Fetai, 2013. "Assessing Monetary and Fiscal Policy Interaction in a Small Open Economy: the Case Republic of Macedonia," Transition Studies Review, Springer;Central Eastern European University Network (CEEUN), vol. 20(1), pages 89-104, April.
    • Handle: RePEc:spr:trstrv:v:20:y:2013:i:1:p:89-104
    DOI: 10.1007/s11300-013-0266-6
    as

    Download full text from publisher

    File URL: http://hdl.handle.net/10.1007/s11300-013-0266-6
    Download Restriction: Access to full text is restricted to subscribers.
    File URL: https://libkey.io/10.1007/s11300-013-0266-6?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to

    for a different version of it.

    References listed on IDEAS

    as
    1. Perotti, Roberto, 2002. "Estimating the effects of fiscal policy in OECD countries," Working Paper Series 168, European Central Bank.
    2. Christopher A. Sims & Tao Zha, 1999. "Error Bands for Impulse Responses," Econometrica, Econometric Society, vol. 67(5), pages 1113-1156, September.
    3. Olivier Jean Blanchard, 1990. "Suggestions for a New Set of Fiscal Indicators," OECD Economics Department Working Papers 79, OECD Publishing.
    4. Eric M. Leeper & Christopher A. Sims & Tao Zha, 1996. "What Does Monetary Policy Do?," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 27(2), pages 1-78.
    5. Andrew Mountford & Harald Uhlig, 2009. "What are the effects of fiscal policy shocks?," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 24(6), pages 960-992.
    6. Bénédicte Vidaillet & V. d'Estaintot & P. Abécassis, 2005. "Introduction," Post-Print hal-00287137, HAL.
    7. Roberto Perotti, 2002. "Estimating the effects of fiscal policy in OECD countries," Economics Working Papers 015, European Network of Economic Policy Research Institutes.
    8. Starr, Martha A., 2005. "Does money matter in the CIS? Effects of monetary policy on output and prices," Journal of Comparative Economics, Elsevier, vol. 33(3), pages 441-461, September.
    9. Robert J. Gordon, 1986. "The American Business Cycle: Continuity and Change," NBER Books, National Bureau of Economic Research, Inc, number gord86-1, September.
    10. Bernanke, Ben S. & Boivin, Jean, 2003. "Monetary policy in a data-rich environment," Journal of Monetary Economics, Elsevier, vol. 50(3), pages 525-546, April.
    11. Rzońca, Andrzej & Ciżkowicz, Piotr, 2005. "Non-Keynesian effects of fiscal contraction in new member states," Working Paper Series 519, European Central Bank.
    12. Ben S. Bernanke & Ilian Mihov, 1998. "Measuring Monetary Policy," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 113(3), pages 869-902.
    13. V. Anton Muscatelli & Patrizio Tirelli, 2005. "Analyzing the Interaction of Monetary and Fiscal Policy: Does Fiscal Policy Play a Valuable Role in Stabilisation?," CESifo Economic Studies, CESifo Group, vol. 51(4), pages 549-585.
    14. Olivier Blanchard & Roberto Perotti, 2002. "An Empirical Characterization of the Dynamic Effects of Changes in Government Spending and Taxes on Output," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 117(4), pages 1329-1368.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Goran Petrevski & Borce Trenovski & Biljana Tashevska, 2019. "The effectiveness of fiscal and monetary policies in a small open economy – the case of Macedonia," Post-Communist Economies, Taylor & Francis Journals, vol. 31(6), pages 805-821, November.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Besnik Fetai & Selajdin Abduli, 2014. "Macroeconomics Effect Of Fiscal Policy In Transition Economies: The Case Republic Of Macedonia," Economy & Business Journal, International Scientific Publications, Bulgaria, vol. 8(1), pages 1035-1047.
    2. K. Peren Arin & Peter H. Helles & Murat Koyuncu & Otto F. M. Reich, 2016. "Should We Care About The Composition Of Tax-Based Stimulus Packages?," Contemporary Economic Policy, Western Economic Association International, vol. 34(3), pages 430-445, July.
    3. Francisco de Castro, 2006. "The macroeconomic effects of fiscal policy in Spain," Applied Economics, Taylor & Francis Journals, vol. 38(8), pages 913-924.
    4. Monika Pécsyová, 2014. "Odhad vplyvu fiškálnej konsolidácie na rast HDP v SR [Estimated Impact of Fiscal Consolidation on GDP Growth in the Slovak Republic]," Politická ekonomie, Prague University of Economics and Business, vol. 2014(2), pages 174-193.
    5. Giordano, Raffaela & Momigliano, Sandro & Neri, Stefano & Perotti, Roberto, 2007. "The effects of fiscal policy in Italy: Evidence from a VAR model," European Journal of Political Economy, Elsevier, vol. 23(3), pages 707-733, September.
    6. JonasD.M. Fisher & Ryan Peters, 2010. "Using Stock Returns to Identify Government Spending Shocks," Economic Journal, Royal Economic Society, vol. 120(544), pages 414-436, May.
    7. Cerón, Juan A., 2012. "La respuesta de la política fiscal a la actividad económica en los países desarrollados/Fiscal policy reaction to economic activity in developed countries," Estudios de Economia Aplicada, Estudios de Economia Aplicada, vol. 30, pages 369(32)-369, Abril.
    8. Nooman Rebei, 2004. "Characterization of the Dynamic Effects of Fiscal Shocks in a Small Open Economy," Staff Working Papers 04-41, Bank of Canada.
    9. Milan Deskar-Škrbić & Hrvoje Šimović & Tomislav Ćorić, 2013. "Effects of Fiscal Policy in a Small Open Economy: Evidence of Croatia," EFZG Working Papers Series 1302, Faculty of Economics and Business, University of Zagreb.
    10. Jorge E. Restrepo & Hernán Rincón, 2006. "Identifying Fiscal Policy Shocks In Chile And Colombia," Borradores de Economia 397, Banco de la Republica de Colombia.
    11. Jungsuk Kim & Mengxi Wang & Donghyun Park & Cynthia Castillejos Petalcorin, 2021. "Correction to: Fiscal policy and economic growth: some evidence from China," Review of World Economics (Weltwirtschaftliches Archiv), Springer;Institut für Weltwirtschaft (Kiel Institute for the World Economy), vol. 157(4), pages 1003-1004, November.
    12. María Lorena Marí Del Cristo & Marta Gómez-Puig, 2013. "Fiscal dynamics in a dollarized, oil-exporting country: Ecuador," Working Papers 13-06, Asociación Española de Economía y Finanzas Internacionales.
    13. Peren Arin, K. & Koray, Faik & Spagnolo, Nicola, 2015. "Fiscal multipliers in good times and bad times," Journal of Macroeconomics, Elsevier, vol. 44(C), pages 303-311.
    14. Ianc, Nicolae-Bogdan & Turcu, Camelia, 2020. "So alike, yet so different: Comparing fiscal multipliers across EU members and candidates," Economic Modelling, Elsevier, vol. 93(C), pages 278-298.
    15. Annicchiarico, Barbara & Giammarioli, Nicola & Piergallini, Alessandro, 2012. "Budgetary policies in a DSGE model with finite horizons," Research in Economics, Elsevier, vol. 66(2), pages 111-130.
    16. Francesco Daveri & Andrea Mascotto, "undated". "The IT revolution across the U.S. states," Working Papers 226, IGIER (Innocenzo Gasparini Institute for Economic Research), Bocconi University.
    17. repec:ebl:ecbull:v:5:y:2007:i:22:p:1-7 is not listed on IDEAS
    18. Asuamah Yeboah, Samuel, 2018. "Do government activities determine electricity consumption in Ghana? An empirical investigation," MPRA Paper 89408, University Library of Munich, Germany.
    19. Patrick Fève, 2005. "Voies de la modélisation macro-économétrique?," Revue Française d'Économie, Programme National Persée, vol. 20(1), pages 147-179.
    20. Carrillo, Paul A., 2010. "“Modelo Dinámico para Análisis y Pronóstico del Producto Interno Bruto”: Un Enfoque Fiscal Aplicando un Modelo SVAR [Dynamic Model for Analysis and Forecast of Gross Domestic Product': A Fiscal App," MPRA Paper 32005, University Library of Munich, Germany.
    21. Ramey, V.A., 2016. "Macroeconomic Shocks and Their Propagation," Handbook of Macroeconomics, in: J. B. Taylor & Harald Uhlig (ed.), Handbook of Macroeconomics, edition 1, volume 2, chapter 0, pages 71-162, Elsevier.

    More about this item

    Keywords

    ;
    ;
    ;
    ;
    ;
    ;
    ;
    ;
    ;

    JEL classification:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:spr:trstrv:v:20:y:2013:i:1:p:89-104. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Sonal Shukla or Springer Nature Abstracting and Indexing (email available below). General contact details of provider: http://www.springer.com .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.