Application of IS-MP-IA model and Taylor rule to CESEE economies

Josheski, Dushko and Eftimoski, Dimitar (2016) Application of IS-MP-IA model and Taylor rule to CESEE economies. Economics and Culture, 13 (1). pp. 5-13. ISSN 2256-0173

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Abstract

In this paper, the extended framework of the IS-MP-IA model has been tested. Since the appearance of the Romer’s (2000) model, a bulk of studies with its extensions have been published. Perhaps, the most notable amongst them were those proposed by Hsing (2004, 2013) and Giese and Wagner (2006) – which are integral part of this paper. The application of the extended Romer (2000) model to selected Central Eastern and South Eastern Europe (CESEE) countries (Albania, Bulgaria, Croatia, Czech Republic, Estonia, Hungary, Macedonia, Moldova, Romania, Russian Federation, Slovak Republic, Slovenia and Ukraine) shows that on an average, higher world output and lower world interest rate and inflation have positive effect on real output. A lower government consumption to gross domestic product (GDP) ratio also increases the real output. However, the insignificant government consumption implies that the Ricardian equivalence might hold in these economies. Hence, fiscal prudence is needed, and the conventional approach of real currency depreciation, in order to stimulate exports and raise real output, is not recommendable for the selected CESEE countries. The results from this paper can be useful for the policymakers and the academia. They prove the theoretical and empirical value of the Romer’s IS-MP-IA model. From a methodological point of view, we use generalised method of moments (GMM) estimator for dynamic panel data models, that is, first-differenced GMM.

Item Type: Article
Subjects: Social Sciences > Economics and business
Divisions: Faculty of Tourism and Business Logistics
Depositing User: Dusko Josevski
Date Deposited: 22 Sep 2016 07:51
Last Modified: 22 Sep 2016 07:55
URI: http://eprints.ugd.edu.mk/id/eprint/16284

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