Boskov, Tatjana (2015) Sustainability of EU convergence based on exchange rate anchor during crisis and post crisis period. In: Economic recovery in the post-crisis period, 29-30 May 2015, Skopje, Macedonia.
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Abstract
To cope with competitive pressures and market forces within the EU in the medium-term, the
SEE6 needs to address important challenges through determined implementation of structural reforms.
Progress with structural reforms can help for macroeconomic stability, for example, by reducing the
structural external deficits. Also it helps nominal convergence, as the productivity realizes the
improvement of competitiveness and helps disinflation by maintaining low unit cost. So in terms of
macroeconomic convergence for SEE6 countries and the case of Macedonia, EU membership requires
convergence of the Macedonian economy with that of the EU in realistic conditions, indicating income
per capita and economic structure, and in nominal terms, meaning convergence of prices, inflation and
interest rates.
Because of the fact that Southeastern European countries rely mainly on exchange rate anchors
to reduce inflation, the appreciation of the real exchange rate among countries in the region is
significant, although it is slightly lower when compared to countries in the EU member states. As a result,
these countries suffer from loss of competitiveness. This can be clearly seen from the movements of the
deficit on their current account, which are important in all these countries. Using the exchange rate as
anchor for inflationary expectations, on long run have been effective so far, producing a low and stable
inflation rates. However, in periods of low inflation and deflationary pressures, exchange rate anchors
do not allow sufficient space for fiscal and monetary stimulus. In this respect, policy makers are under
following dilemma: to deviate from exchange rate anchor and increase the space for fiscal and monetary
stimulus; to accelerate structural reforms and competitiveness and on short run deepen the recessionary
pressures; and to increase foreign debt and thus increase scope for fiscal and monetary stimulus while
preserving the exchange rate anchor. All three scenarios are analyzed in this paper.
Economic policies can be instrumental for growth in the near- and the medium-term in SEE6. On
the fiscal side, sustained reform effort is needed to address structural rigidities in the budgets of SEE6.
Priorities include: changes in the composition of public expenditure toward investment and away from
wages, public expenditure targeting and prioritization as well as improvements in revenue collection
and the broadening of the tax base, among others. On the monetary policy side, with regional inflation
at a very low 1.2 percent and big output gaps remaining, some scope for short-term easing of monetary
conditions exist, especially in those countries where deficits have begun to decline. Above facts and real
situations are our challenges for making analysis and contribution in this area.
| Item Type: | Conference or Workshop Item (Paper) |
|---|---|
| Subjects: | Social Sciences > Economics and business |
| Divisions: | Faculty of Tourism and Business Logistics |
| Depositing User: | Tatjana Boskov |
| Date Deposited: | 26 Jan 2016 15:01 |
| Last Modified: | 26 Jan 2016 15:01 |
| URI: | https://eprints.ugd.edu.mk/id/eprint/15046 |
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