Aggregate demand–inflation adjustment model applied to Southeast European economies

Apostolov, Mico and Josheski, Dushko (2016) Aggregate demand–inflation adjustment model applied to Southeast European economies. Journal of Central Banking Theory and Practice, 5 (1). pp. 141-157. ISSN 2336-9205

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Applying IS-MP-IA model and the Taylor rule toselected Southeast European economies (Albania, Bosnia and Herzegovina, Macedonia and Serbia)we find that the change of effective exchange rate positivelyaffects output, while the change of the world interest ratenegatively affects output or it does not affect the output at all, and additionalworld output would help to increase output of the selected economies.

A lower ratio of government consumption spending to GDP would also increase the output of the selected economies. Hence, fiscal prudence is needed, and the conventional approach of real depreciation to stimulate exports and raise real output does not apply to the selected Southeast Europe economies.

When private household consumption is employed in the model, the coefficient on government spending to nominal GDP is insignificant implying that Ricardian equivalence does hold for the selected countries.

Item Type: Article
Subjects: Social Sciences > Economics and business
Divisions: Faculty of Tourism and Business Logistics
Depositing User: Mico Apostolov
Date Deposited: 28 Jan 2016 10:32
Last Modified: 28 Jan 2016 10:32

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