The Coordination of Fiscal and Monetary Policy in Context of Economic Stability - The Case of Macedonia
Keywords:
economic stability, fiscal policy, monetary policy, coordination, unemployment, hyperinflation.Abstract
These paper goal is to point out the relevance of efficient coordination of fiscal and monetary policy in order to achieve economic stability and prosperity. It will analyze several critical economic situations like low industrial production, escalation of hyperinflation tension, high unemployment, an unfavorable balance of payments situation, and low foreign exchange reserves during the 90s in R. Macedonia. In this period the country tried through joint fiscal and monetary policy to battle off all the economic challenges that had risen from the dissolution of the Former country Yugoslavia.
Especially the focus will be aimed on the stability programs through which the country successfully survived those critical times.
References
Blejer et al., (eds.). Financial Factors in Economic Stabilization and Growth. Cambridge: Cambridge University Press, 1997, p. 58.
R. Sahay and C. Vegh.
For more details see G. Petreski. Monetary Policy: Theory and experience of Macedonia. Association for socio-economic development, Skopje, 2005, p. 226.
For example, in the first quarter of 1992, with exports of 208 million dollars, the foreign currency inflow amounted to 37.5 million, i.e. that is only 18%.
G. Petreski. Monetary Policy: Theory and experience of Macedonia. Association for socio-economic development, Skopje, p.237.
Despite the predicted disciplined fiscal policy, during 1993 was not realized significant restriction of budget spending, which contributed to high budget deficit of 13.4% of GDP. Moreover, wage policy was not aimed at supporting the stabilization policy as it gave rise in real wages of 28.9%. All this points to the fact that the leading engine stabilization policy was precisely monetary policy.
In theory, such a large fiscal effort to cut the budget deficit, expressed as a percentage of GDP, by at least 1.5 percentage points over two years, and in any year should not come to increase in the deficit. During the two years (1993-1995), Macedonia reduced the budget deficit by an impressive 12.2 percentage points. Thus, fiscal consolidation in Macedonia can be compared with the significant fiscal contraction in modern times.
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