Macroeconomic policies and output fluctuations in slovakia: Application of the taylor rule

Applying the Taylor rule, this paper finds that real output for Slovakia is positively influenced by real appreciation and world output, and negatively affected by the expected inflation rate, real government deficit, the euro interest rate, and the U.S. federal funds rate. Policy implications are that the Taylor rule works well for Slovakia, that expansionary fiscal policy may crowd out private spending and would not raise output, and that the conventional wisdom of devaluating a currency to stimulate the economy would not apply to Slovakia. (JEL: E52 E62 F41 O52) I am grateful to an anonymous referee for very insightful comments. Any errors are the author’s responsibility.