1. bookVolume 5 (2016): Issue 1 (January 2016)
Journal Details
License
Format
Journal
eISSN
2336-9205
First Published
11 Mar 2014
Publication timeframe
3 times per year
Languages
English
access type Open Access

Aggregate Demand–Inflation Adjustment Model Applied to Southeast European Economies

Published Online: 26 Jan 2016
Volume & Issue: Volume 5 (2016) - Issue 1 (January 2016)
Page range: 141 - 157
Journal Details
License
Format
Journal
eISSN
2336-9205
First Published
11 Mar 2014
Publication timeframe
3 times per year
Languages
English
Abstract

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

Keywords

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