The effectiveness of fiscal and monetary policies in a small open economy - the case of Macedonia

In this article, we use a recursive VAR model to study the macroeconomic effects of fiscal and monetary policies in Macedonia as well as their interactions during 2000-2014. The main findings from our empirical investigation are as follows: first, an increase in public expenditure results in lower e...

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Bibliographic Details
Published in:Post-communist economies 2019-11, Vol.31 (6), p.805-821
Main Authors: Petrevski, Goran, Trenovski, Borce, Tashevska, Biljana
Format: Article
Language:English
Subjects:
Banking
Central banks
Economic activity
fiscal multipliers
Fiscal policy
Foreign exchange
Government spending
Interest rates
Macedonia
Macroeconomics
Monetary policy
Price levels
Prices
Public debt
Side effects
VAR
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Summary:In this article, we use a recursive VAR model to study the macroeconomic effects of fiscal and monetary policies in Macedonia as well as their interactions during 2000-2014. The main findings from our empirical investigation are as follows: first, an increase in public expenditure results in lower economic activity, higher public debt and a loss of foreign exchange reserves; second, an increase in the public revenue has positive output effects accompanied by rising prices, higher foreign exchange reserves and a modest reduction in the public debt; third, a rise in the central bank's interest rate produces conventional adverse effects on economic activity followed by a decline in the price level; fourth, monetary and fiscal policies act as strategic substitutes; and fifth, our estimates of the fiscal multipliers imply non-Keynesian effects of fiscal policy.
ISSN:1463-1377
1465-3958
DOI:10.1080/14631377.2019.1607437