Abstract
The article discusses classical and modern macroeconomic models of interaction of fiscal and monetary policies in Belarus. The hypothesis of this research is that the interaction of fiscal and monetary policies has a synergistic effect on economic growth and that at certain stages, one of these policies prevails over the other. This hypothesis was tested with the help of an IS-LM model, which was used to investigate the joint effects of monetary and fiscal policies on business activity in Belarus. A Markov switching model was developed in Eviews software to analyze the interaction between these policies. Regression dependences of the average tax burden (including the burden imposed by social security contributions) and GDP, investment and the refinancing rate were built by using Excel software. To solve the IS-LM model, the value of autonomous consumption was computed with the help of the adjusted value of the average propensity to consume. It was found that autonomous consumption is comparable with the budget of subsistence minimum in Belarus. The share of government spending in the GDP structure was on average 35.01%. The comparison of gross savings and investment showed that in the majority of periods, gross savings insignificantly exceeded the amount of investment, that is, the available funds were used for consumer lending rather than for investment. Analysis of the Markov switching model has led us to the conclusion that from the first quarter 2005 until the fourth quarter of 2009, the fiscal policy in Belarus was in the active regime. The passive fiscal policy regime was observed in the period between the first quarter of 2010 and the first quarter of 2019. In this period, a rise in the public debt was accompanied by an increase in the budget surplus. In the second quarter of 2019, there was a transition to a more active fiscal policy, which points to the need to intensify tax reforms.
Highlights
This paper argues that this is the situation the Brazilian economy found itself in in 2002 and
A standard proposition in open-economy macroeconomics is that a central-bankengineered increase in the real interest rate makes domestic government debt more attractive and leads to a real appreciation
The increase in the real interest rate increases the probability of default on the debt, the effect may be instead to make domestic government debt less attractive, and to lead to a real depreciation
Summary
In standard open economy models, a central-bank-engineered increase in the real interest rate leads to a decrease in inflation through two channels. The question raised by the experience of Brazil in 2002 and 2003 is about the sign of the second channel It is whether and when, once one takes into account the effects of the real interest rate on the probability of default on government debt, an increase in the real interest rate may lead, instead, to a real depreciation. This is the question taken up in this model, and in the empirical work which follows. Taking into account the probability of default, the expected real rate of return on this bond is given by:. Taking into account the probability of default, the gross expected real rate of return on this bond is given by:
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