Macroeconomic Populism The Baltic Current Accounts

Abstract

The outstanding growth and the sudden stop of the Baltic economies in the 2000s arose the assumption that their textbook-like and disciplined economic policy had actually an expansionary and overheating impact on economic growth. A reinterpreted theory of political economy was assigned to this phenomenon. It is called macroeconomic populism. The following study tests the link between the current account imbalance and the real effective exchange rate. The methodology is an OLS regression analysis on current account balance including real effective exchange rate based on both HICP and unit labor cost. The hypothesis is that the real effective exchange rate has a significant impact on the current account balance. The results are significant and exclude autocorrelation. If the results are placed in the Baltic economic context, it can be concluded that the macroeconomic populism can be detected in the Baltic region.