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The effectiveness of fiscal and monetary policies in a small open economy – the case of Macedonia

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  • Goran Petrevski
  • Borce Trenovski
  • Biljana Tashevska

Abstract

In this article, we use a recursive VAR model to study the macroeconomic effects of fiscal and monetary policies in Macedonia as well as their interactions during 2000–2014. The main findings from our empirical investigation are as follows: first, an increase in public expenditure results in lower economic activity, higher public debt and a loss of foreign exchange reserves; second, an increase in the public revenue has positive output effects accompanied by rising prices, higher foreign exchange reserves and a modest reduction in the public debt; third, a rise in the central bank’s interest rate produces conventional adverse effects on economic activity followed by a decline in the price level; fourth, monetary and fiscal policies act as strategic substitutes; and fifth, our estimates of the fiscal multipliers imply non-Keynesian effects of fiscal policy.

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  • 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.
  • Handle: RePEc:taf:pocoec:v:31:y:2019:i:6:p:805-821
    DOI: 10.1080/14631377.2019.1607437
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