Macroeconomic Effects of Fiscal and Monetary Policies in the Central and East European Countries
DOI:
https://doi.org/10.15678/ZNUEK.2019.0981.0303Keywords:
budget balance, money supply, current account, business cycle, producer price inflationAbstract
Objective: The aim of this paper is to study the effects of budget balance and money supply on producer price inflation (PPI), the current account balance and the output gap for five Central and East European (CEE) countries (Bulgaria, the Czech Republic, Hungary, Poland and Romania).
Research Design & Methods: Based on the quarterly data over the 2000–2017 period, macroeconomic effects of the budget balance and money supply are estimated with the Structural Vector Autoregressive (SVAR) model, which anticipates reliance of the money supply upon the current account balance on impact, with a simultaneous dependence of the latter upon the business cycle.
Findings: A budget surplus did not cause any output losses in any of the five CEE countries. For three of the countries (Bulgaria, the Czech Republic, Poland), a budget surplus is associated with decelerating producer price inflation and improvement in the current account balance (the Czech Republic, Hungary, Poland). A budget surplus is likely to bring about an increase in the money supply. Expansionary monetary policy is a factor behind either worsening of the budget balance (Bulgaria, Poland), or a short-lived improvement in it (the Czech Republic, Hungary). Macroeconomic effects of the money supply tend to be heterogeneous, supporting both demand-side and supply-side transmission mechanisms.
Implications / Recommendations: Our results favour conservative fiscal and monetary policies in all five of the CEE countries, particularly in the Czech Republic and Poland.
Contribution: The scientific contribution of the article is that it justifies the use of the dependent economy model, with output disaggregated into tradable and nontradable sectors, for analysis of economic policy in the CEE countries.
Downloads
References
Alesina A., Ardagna S. (2009), Large Changes in Fiscal Policy: Taxes versus Spending, NBER Working Paper, no. 15438, National Bureau of Economic Research Cambridge, Mass. DOI: https://doi.org/10.3386/w15438
Ambriŝko R., Babecky J., Rysanek J., Valenta V. (2015), Assessing the Impact of Fiscal Measures on the Czech Economy, „Economic Modelling”, vol. 44 (C), https://doi.org/10.1016/j.econmod.2014.07.021. DOI: https://doi.org/10.1016/j.econmod.2014.07.021
Anzuini A., Levy A. (2007), Monetary Policy Shocks in the New EU Members: a VAR Approach, „Applied Economics”, vol. 39, nr 9, https://doi.org/10.1080/00036840600592866. DOI: https://doi.org/10.1080/00036840600592866
Basco E., D’Amato L., Caregnani L. (2009), Understanding the Money-prices Relationship under Low and High Inflation Regimes: Argentina 1977–2006, „Journal of International Money and Finance”, vol. 28, nr 7, https://doi.org/10.1016/j.jimonfin.2009.06.008. DOI: https://doi.org/10.1016/j.jimonfin.2009.06.008
Bollano J., Ibrahimaj D. (2015), Current Account Determinants in Central Eastern European Countries, GIIDS Working Paper, HEIDWP0022-2015, Graduate Institute of International and Development Studies, Geneva.
Borys M.M., Horváth R., Franta M. (2009), The Effects of Monetary Policy in the Czech Republic: An Empirical Study, „Empirica”, vol. 36, nr 4. DOI: https://doi.org/10.1007/s10663-009-9102-y
Canova F., Menz T. (2011), Does Money Matter in Shaping Domestic Business Cycles? An International Investigation, „Journal of Money Credit & Banking”, vol. 43, nr 4, https://doi.org/10.1111/j.1538-4616.2011.00388.x. DOI: https://doi.org/10.1111/j.1538-4616.2011.00388.x
Chmieliewski T., Kapuściński M., Kocięcki A., Łyziak T., Przystupa J., Stanisławska E., Wróbel E. (2017), Mechanizm transmisji polityki pieniężnej w Polsce. Stan wiedzy w 2017 roku, Materiały i Studia nr 330, Narodowy Bank Polski, Warszawa.
Combes J.L., Minea A., Mustea L., Yogo T. (2016), Output Effects of Fiscal Stimulus in Central and Eastern European Countries, „Post-Communist Economies”, vol. 28, nr 1, https://doi.org/10.1080/14631377.2015.1124559. DOI: https://doi.org/10.1080/14631377.2015.1124559
Ćorić T., Šimović H., Deskar-Škrbić M. (2015), Monetary and Fiscal Policy Mix in a Small Open Economy: The Case of Croatia, „Economic Research-Ekonomska Istraživanja”, vol. 28, nr 1, https://doi.org/10.1080/1331677X.2015.1059073. DOI: https://doi.org/10.1080/1331677X.2015.1059073
Dibooglu S., Kutan, A. (2005), Sources of Inflation and Output Movements in Poland and Hungary: Policy Implications for Accession to the Economic and Monetary Union, „Journal of Macroeconomics”, vol. 27, nr 2, https://doi.org/10.1016/j.jmacro.2003.07.003. DOI: https://doi.org/10.1016/j.jmacro.2003.07.003
Domańska A. (2015), Szoki polityki fiskalnej i monetarnej jako przedmiot badań makroekonomii gospodarki otwartej, Kwartalnik Kolegium Ekonomiczno-Społecznego „Studia i Prace”, nr 1. DOI: https://doi.org/10.33119/KKESSiP.2015.1.5
Favara G., Giordani P. (2009), Reconsidering the Role of Money for Output, Prices and Interest Rates, „Journal of Monetary Economics”, vol. 56, nr 3, https://doi.org/10.1016/j.jmoneco.2009.01.002. DOI: https://doi.org/10.1016/j.jmoneco.2009.01.002
Hafer R., Haslag J., Jones G. (2007), On Money and Ooutput: Is Money Redundant?, „Journal of Monetary Economics”, vol. 54, nr 3, https://doi.org/10.1016/j.jmoneco.2005.06.004. DOI: https://doi.org/10.1016/j.jmoneco.2005.06.004
Horváth R., Komárek L., Rozsypal F. (2011), Does Money Help Predict Inflation? An Empirical Assessment for Central Europe, „Economic Systems”, vol. 35, nr 3, https://doi.org/10.1016/j.ecosys.2011.03.001. DOI: https://doi.org/10.1016/j.ecosys.2011.03.001
Ilzetzki E., Mendoza E., Végh C. (2013), How Big (Small?) Are Fiscal Multipliers?, „Journal of Monetary Economics”, vol. 60, nr 2, https://doi.org/10.1016/j.jmoneco.2012.10.011. DOI: https://doi.org/10.1016/j.jmoneco.2012.10.011
Jarocinski M. (2010), Responses to Monetary Policy Shocks in the East and the West of Europe: A Comparison, „Journal of Applied Econometrics”, vol. 25, nr 5, https://doi.org/10.1002/jae.1082. DOI: https://doi.org/10.1002/jae.1082
Kabashi R. (2017), Macroeconomic Effects of Fiscal Policy in the European Union, with Particular Reference to Transition Countries, „Public Sector Economics”, vol. 41, nr 1, https://doi.org/10.3326/pse.41.1.7. DOI: https://doi.org/10.3326/pse.41.1.7
Kim S. (2001), Effects of Monetary Policy Shocks on the Trade Balance in Small Open European Countries, „Economics Letters”, vol. 71, nr 2, https://doi.org/10.1016/S0165-1765(01)00364-0. DOI: https://doi.org/10.1016/S0165-1765(01)00364-0
Mackiewicz M., Krajewski P. (2008), Skala i efektywność antycyklicznej polityki fiskalnej w kontekście wstąpienia Polski do strefy euro, Uniwersytet Łódzki, Łódź.
Mirdala R. (2013), Fiscal Imbalances and Current Account Adjustments in the European Transition Economies, „Journal of Applied Economic Sciences”, vol. 8, nr 3. DOI: https://doi.org/10.2139/ssrn.2370629
Redo M. (2017), Niekeynesowska zależność pomiędzy tempem wzrostu gospodarczego a wielkością dochodów i wydatków publicznych (w relacji do PKB) w latach 2001–2015 w 11 państwach Europy Środkowo-Wschodniej należących do Unii Europejskiej, Czasopismo Komitetu Nauk o Finansach PAN „Finanse”, nr 1(10).
Rogalska E. (2016), Dostosowania fskalne w krajach Europy Środkowo-Wschodniej, Polskie Towarzystwo Ekonomiczne, Toruń. DOI: https://doi.org/10.24136/eep.mon.2016.3
Rojas-Suarez L. (1992), Limited Capital Markets and the Real Effects of Monetary Stabilization Policies under Alternative Exchange Rate Regimes, „Journal of International Money and Finance”, vol. 11, nr 6. DOI: https://doi.org/10.1016/0261-5606(92)90006-J
Rudebusch G., Svensson L. (1999), Policy Rules and Inflation Targeting (w:) Monetary Policy Rules, ed. J. Taylor, University of Chicago Press, Chicago. DOI: https://doi.org/10.3386/w6512
Rzońca A., Ciżkowicz P. (2005), Non-Keynesian Effects of Fiscal Contraction in New Member States, ECB Working Paper, no 519, European Central Bank, Frankfurt. DOI: https://doi.org/10.2139/ssrn.781087
Segura-Ubiergo A., Simone A., Gupta S. (2006), New Evidence on Fiscal Adjustment and Growth in Transition Economies, IMF Working Paper, 06/244. DOI: https://doi.org/10.5089/9781451865042.001
Starr M. (2005), Does Money Matter in the CIS? Effects of Monetary Policy on Output and Prices, „Journal of Comparative Economics”, vol. 33, nr 3, https://doi.org/10.1016/j.jce.2005.05.006. DOI: https://doi.org/10.1016/j.jce.2005.05.006
Sun R. (2013), Does Monetary Policy Matter in China? A Narrative Approach, „China Economic Review”, vol. 26, nr 1, https://doi.org/10.1016/j.chieco.2013.03.003. DOI: https://doi.org/10.1016/j.chieco.2013.03.003
Uhlig H. (2005), What Are the Effects of Monetary Policy on Output? Results from an Agnostic Identification Procedure, „Journal of Monetary Economics”, vol. 52, nr 2, https://doi.org/10.1016/j.jmoneco.2004.05.007. DOI: https://doi.org/10.1016/j.jmoneco.2004.05.007
Windberger T., Crespo Cuaresma J., Walde J. (2010), Dirty Floating and Monetary Independence in Central and Eastern Europe – the Role of Structural Breaks, University of Innsbruck Working Papers in Economics and Statistics, nr 2012–21.
Zezza G. (2012), The Impact of Fiscal Austerity in the Eurozone, „Review of Keynesian Economics”, Inaugural Issue. DOI: https://doi.org/10.4337/roke.2012.01.03
Downloads
Published
Issue
Section
License
Copyright (c) 2019 Cracow Review of Economics and Management
This work is licensed under a Creative Commons Attribution 4.0 International License.
