Abstract
We analyse the effects of fiscal and monetary policies in Croatia and Macedonia estimated by a Bayesian vector autoregression (VAR). The main results of the study are as follows. Fiscal tightening leads to economic expansion in Macedonia and a decline in economic activity in Croatia. In both countries fiscal tightening leads to a decline in inflation and money market rates. Monetary tightening leads to output contraction and a decline in inflation in both countries. We find an opposite reaction of the fiscal authorities to a monetary shock, i.e., monetary contraction is accompanied by fiscal tightening in Croatia and by loose fiscal policy in Macedonia.
Highlights
Since the seminal work of Mundell (1963) and Fleming (1962) a large body of literature has analysed the effectiveness of monetary and fiscal policies under the fixed exchange rate regime (For instance, see BahmaniOskooee and Pourheydarian 1990; Gali and Monacelli 2005; Lane and Perotti 2003; Niehans 1968; Shambaugh 2004)
As for the effects of macroeconomic policies, the main results are as follows: Fiscal tightening leads to economic expansion in Macedonia and a decline in economic activity in Croatia
We find an opposite reaction of the fiscal authorities to a monetary shock: in Croatia, monetary contraction is accompanied by fiscal tightening in Croatia and by loose fiscal policy in Macedonia
Summary
Online at https://mpra.ub.uni-muenchen.de/73461/ MPRA Paper No 73461, posted 02 Sep 2016 15:34 UTC. The effects of macroeconomic policies under fixed exchange rates: A Bayesian VAR analysis Abstract. We analyse the effects of fiscal and monetary policies in Croatia and Macedonia based on the Bayesian Vector Autoregressions. The main results of the study are as follows: Fiscal tightening leads to economic expansion in Macedonia and a decline in economic activity in Croatia. In both countries fiscal tightening leads to a decline in inflation and money market rates. Monetary tightening leads to output contraction and a decline in inflation in both countries.
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