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Impact of macroeconomic stability on private fixed investments in selected countries of Central and Southeast Europe

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  • Milan Trajkovic

    (National Bank of Serbia)

Abstract

The paper explores cause-and-effect relationship between macroeconomic stability and private fixed investments in the 2001–2019 period in Central and Southeast European countries applying inflation targeting regime in their monetary policies. Change in the inflation rate, share of the current account deficit in GDP and change in the share of fiscal deficit in GDP are used to proxy macroeconomic stability. For the purpose of the analysis, a fixed effects panel model has been estimated, with simultaneous control for standard investment determinants (quality of institutions, external demand, relative price of capital goods, real interest rate, openness of the economy and financial market development). The results show that improved indicators of macroeconomic stability have a positive impact on the share of private fixed investments in GDP, boosting the outlook for economic growth. The estimated model confirms that both improved quality of institutions and other standard private investment determinants enhance the share of private fixed investments in GDP. The analysis also indicates robustness both when applying the fixed or random effects panel and different control variables.

Suggested Citation

  • Milan Trajkovic, 2022. "Impact of macroeconomic stability on private fixed investments in selected countries of Central and Southeast Europe," Working Papers Bulletin 7, National Bank of Serbia.
    • Handle: RePEc:nsb:bilten:7
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    JEL classification:

    • E22 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Investment; Capital; Intangible Capital; Capacity
    • E3 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • E61 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Policy Objectives; Policy Designs and Consistency; Policy Coordination

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