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Title: Fiscal and monetary policy effects in three South Eastern European economies
Authors: Petrevski, Goran 
Bogoev, Jane
Tevdovski, Dragan 
Keywords: Fiscal policy, Monetary policy, VAR
Issue Date: Mar-2016
Publisher: Springer Science and Business Media LLC
Journal: Empirical Economics
Abstract: This paper investigates the macroeconomic effects of monetary and fiscal policies in three South Eastern European economies: Bulgaria, Croatia and Macedonia. We employ recursive vector autoregressions in order to study the linkages among fiscal policy, monetary policy and economic activity based on quarterly data on primary cyclically adjusted balance, monetary policy indicators, inflation rate and output gap. We obtain the following main results: first, domestic economic activity exerts significant effects on inflation, provoking a strong reaction of monetary policy, especially in case of procyclical or erratic behavior of fiscal policy; second, we find evidence for the expansionary effects of fiscal consolidation since fiscal tightening leads to an increase in economic activity; third, the effects of monetary policy on output and inflation are generally as expected; fourth, monetary policy acts as a strategic substitute to tight fiscal policy, while in case of monetary tightening, fiscal authorities behave in a countercyclical manner.
DOI: 10.1007/s00181-015-0932-0
Appears in Collections:Faculty of Economics 03: Journal Articles / Статии во научни списанија

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