Monetary and Fiscal Policies in Bulgaria: Lessons from the Historical Record
There are two aspects through which an economic policy can influence the economic situation – monetary and fiscal. Monetary and fiscal policies have different and sometimes controversial goals to achieve by means of specific instruments. While the mission of central banks is generally price stability, governments usually set their goals in the realm of economic growth and employment. Fiscal institutions , however, often use inflation in order to derive revenues (seigniorage) and finance budget deficits. Hence, inflation is viewed as a public finance phenomenon (Barro, 1979; Mankiw, 1987; Grilli, 1989). The purpose of this paper is to present a historical perspective on the behaviour of the monetary and fiscal policies pursued in Bulgaria from 1879, when the Bulgarian National Bank was established (soon after the liberation from the Ottoman Empire). Furthermore, historical time series of monetary and fiscal indicators give us the chance to study the link between government budget problems, fluctuations of monetary variables and inflation dynamics in different monetary episodes.
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