Montenegrin Quarterly Macroeconomic Econometric Model

Abstract

Specific features of quarterly econometric model for Montenegro are dealing with the euroization of the economy, de facto separation of Montenegrin economy from Serbian economy. The model is specified with final demand as driving force of the economic growth, but, in addition, with some specific detail of supply side economics regarding negative role of government expenditures and taxation on some forms of activity. Key features of the model are: inclusion of relevant real and financial sectors of the economy, estimation of labour and capital market, division of labour market on tradable and non-tradable part, creation of activity variable in addition to industrial production and identifying final demand as driving force of the economy. Special features are connected with peculiarities of Montenegrin economy, which include lack of domestic currency and fiscal restraint following Maastricht criteria. Model enables the analysis of measures of monetary, fiscal and some employment policy. The ultimate goal of building model was to describe functioning of Montenegrin economy which needs to be better understood by authorities (government, central bank). Next, model is intended to help identifying and quantifying appropriate measures of economic policy; their quantification should be consistent with the major economic goals authorities declared in their yearly economic policy resolutions.