IDEAS home Printed from
   My bibliography  Save this article

Isn’T Output More Important Than Inflation In Impotent Economy: Serbia’S Economic Policies Revision


  • Dragan Ðuričin

    (University of Belgrade, Faculty of Economics)

  • Iva Vuksanović

    (University of Belgrade, Faculty of Economics)


Current economic crisis in Serbia was triggered primarily by pre-transitional structural instabilities and stressors influenced by uncompleted transition, both geopolitical and economic.The fact that macroeconomic policies (monetary and fiscal, primarily) did not manage to fix these problems forces economic practitioners to question the orthodox framework for conducting economic policies. With structural instabilities and in the absence of automatic stabilizers orthodox macroeconomic policies lose their purpose. The previous point is important for Serbia as an economy in transition in which radical reforms such as privatization and financial deregulation provoked output gap. A shift in perspective is particularly important for Serbia that entered the 2008 global economic crisis with impotent economy, low competitiveness, and high system risk. In macroeconomics the prevailing orthodoxy asserted that there was no incompatibility between keeping inflation low and stable, and seeking for maximum growth (or minimal output gap). From this point, the misconception of macroeconomic orthodoxy becomes obvious to anyone. The majority of previous macroeconomic models broke down because the modelers largely ignored their microeconomic implications, or how firms and banks would react to imposed policies and regulation that attempted to exploit past correlations in the data base in order to eliminate market failures. The modeling that took fixing of the problem for granted resulted in breakdown of fixing. Most importantly, with this kind of modeling, no economy in deep recession has ever made turnaround. Today, besides domestic transitional recession, Serbia’s economy is exposed to global double dip crisis. This “combined crisis” will end upon reaching two conditions. First, when bubbles in all kinds of assets are deflated. In the period before the global economic crisis, debt-fueled bubbles were the trigger for irrational exuberance and, consequently, overestimation of the value of equity based on mark-to-market accounting. The bubbles deflation, or eventually bubbles burst, leads to convergence of the real and market value of different kinds of assets. Second, crisis ends, also, when asset prices, debt levels, and factors’ income get back into the balance. When the new balance is met, economic expectations will rise, new investment cycle will start, and economy will leave the crisis. Until then, new economic policies must correct all structural instabilities and create the fundaments for recovery. Policy makers in Serbia must react to the main transitional contradiction that achieved price stability is not followed with sustainable employment. The first step in this reaction is to understand the complexity of the crisis and to identify its seeds. In our latest article [3], we intended to identify the seeds of the Serbia’s economic crisis and to figure out the feasible solutions predominantly from microeconomic perspective. In this article we shift the focus to macroeconomic perspective. Again, industrial policies are at the core of feasible solution. This is what this paper attempts to explain. It proceeds in five parts. The first and second part review common macroeconomic “M” as a bottom line in macroeconomic analysis and economic policy modeling, respectively. The third and fourth part analyze Serbia’s macroeconomic “M” and related economic policies, respectively. The fifth part identifies industrial policies as a main tool for elimination of structural imbalances and competitiveness gap. Also, in this part we propose the roadmap for exit from the crisis.

Suggested Citation

  • Dragan Ðuričin & Iva Vuksanović, 2012. "Isn’T Output More Important Than Inflation In Impotent Economy: Serbia’S Economic Policies Revision," Serbian Association of Economists Journal, SAE - Serbian Association of Economists, issue 1-2, pages 13-32, February.
  • Handle: RePEc:srb:journl:y:2012:i:1-2:p:13-32

    Download full text from publisher

    File URL:
    Download Restriction: no


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

    Cited by:

    1. Dejan Malinić & Vlade Milićević, 2012. "Coovercoming Financial Structural Disorders As A Prerequisite For Strengthening The Competitiveness Of Serbian Economy," Serbian Association of Economists Journal, SAE - Serbian Association of Economists, issue 7-8, pages 317-328, December.
    2. Dragan Lončar & Vesna Rajić, 2012. "Concentration And Competitiveness O The Banking Market In Serbia: Current Situation And Possible Future Changes Under The Influence Of Market Consolidation," Serbian Association of Economists Journal, SAE - Serbian Association of Economists, issue 7-8, pages 372-385, December.

    More about this item


    Serbia; macroeconomic M; structural instabilities; twin output gaps; twin deicits; system risk; industrial policies; real economy; automatic stabilizers; currency board.;

    JEL classification:

    • E00 - Macroeconomics and Monetary Economics - - General - - - General


    Access and download statistics


    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:srb:journl:y:2012:i:1-2:p:13-32. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Milos Stamatovic) or (Rebekah McClure). General contact details of provider: .

    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.

    We have no references for this item. You can help adding them by using 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.

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

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.