Optimal macroeconomic policies in a financial and economic crisis: a case study for Slovenia

In this paper, we study different and, in particular, “optimal” reactions of fiscal (and to some extent monetary) policies to the financial and economic crisis of 2007–2009 in Slovenia, a small open economy that is part of the Economic and Monetary Union (EMU). Using an econometric model of the Slovenian economy, we simulate the effects of the global crisis under the assumption of no-policy reactions, i.e. assuming that macroeconomic policies are conducted without attempting to deal with the effects of the crisis. Next, we study the possibilities of fiscal policy reducing or even annihilating the effects of the crisis. We also investigate the optimal reaction of fiscal policies based on the assumption that Slovenian policy-makers behave as though they were optimizing an objective function. We show that optimal policies call for only a very modestly active countercyclical role of fiscal policies. There are strong trade-offs between countercyclical fiscal policies and the requirements of fiscal solvency.     

Budget consolidation in a small open economy: a case study for Slovenia

In this article, we use the macroeconometric model SLOPOL10 to calculate simulations of the development of the Slovenian economy until 2030. Starting from the present favourable prospects of the European economies, the forecast is very optimistic but it can nevertheless be improved by optimal fiscal policies as calculated using the OPTCON2 algorithm. If a negative shock to world trade of a size comparable to the Great Recession occurs, it will entail a decline in GDP and a slow recovery. In this case, optimal fiscal policies should not act in an expansionary way as the effectiveness of fiscal policy with respect to output and employment is rather limited in a small open economy like Slovenia. Instead, the goal of budget consolidation will call for a more restrictive fiscal policy, at least if the shock is temporary.     

Macroeconomic Policies for Slovenia in the “Great Recession”

The paper analyzes the effects of different reactions of fiscal (and to some extent monetary) policies to the Great Recession in Slovenia. We use the model SLOPOL8.1, an econometric model of the Slovenian economy, to simulate the effects of the global crisis under the assumption of no-policy reactions, i.e. assuming that macroeconomic policies are conducted without attempting to deal with the effects of the recession. Moreover, we investigate whether (and if so, how) fiscal policy can reduce or even annihilate the macroeconomic effects of the recession. It turns out that in order to achieve reasonable rates of growth and of unemployment, a highly expansionary design of fiscal policies is required, which is neither realistic nor sustainable. There are strong trade-offs between countercyclical fiscal policies and the requirements of fiscal solvency. Acceptable fiscal policies are mildly countercyclical and are not able to shelter the Slovenian economy from the negative effects of a slump like that occurring during the Great Recession.     

The transition from ‘socialist’ agriculture to the common agricultural policy: the case of Slovenia

This article describes the changes in Slovenian agricultural policy in the period 1993–2001 in light of Slovenia's anticipated accession to the European Union. Agriculture in Slovenia is characterised by relatively unfavourable natural and structural conditions, which also explains its status as a net food importer and its relatively protectionist agricultural policy. The period of transition was also a period of thorough restructuring of agricultural policy, which was gradually brought into line with the goals and mechanisms of the Common Agricultural Policy (CAP). Even before accession Slovenia started to implement CAP-like measures, including direct payments and rural development policy measures. Slovenia is thus the only candidate country for EU accession with a level of support for agriculture comparable with that in the European Union. In its negotiations for EU membership, Slovenia agreed on the same level of direct payments for Slovenian farmers as received by farmers in the European Union, except that in the first period they will be largely covered from the national budget. As a result of the outcome of negotiations, the economic position of Slovenian farmers after accession is not expected to change markedly on the aggregate level, particularly if all the necessary steps are taken with regard to the building of an efficient system for the transposition of the CAP. Accession to the EU will, however, not solve the problem of relatively poor compeititiveness of the agricultural sector in Slovenia, which still has to undergo comprehensive structural changes and adjustments.     

影响欧元区经济增长的因素分析

除2001年以外,欧元区的经济增长水平一直低于世界发达经济体。根本原因是其技术进步相对落后,劳动力市场僵化,失业率居高不下。以价格稳定为首要目标的单一货币政策,有利于其宏观经济稳定,但在一定程度上制约了经济的快速增长;共同财政纪律,有利于其经济顺利推进,但是削弱了各成员国运用财政政策抵御国内经济周期性振荡以及外部经济失衡的能力,尤其在经济衰退时期限制了各国利用扩张性财政政策刺激经济的手段。     

土地政策参与宏观调控的政策工具研究——基于主体功能区建设的理论探索

自2003年我国明确提出土地政策参与宏观调控以来,国家出台了许多土地政策调节经济。然而与传统的财政政策和货币政策两大宏观调控政策不同的是,土地政策在经典义宏观经济学中却缺少必要理论基础,其参与宏观调控的机制也揭示不足。若要使土地政策成为真正意义上的主流调控手段,则需解决土地的空间性和不可再生性两个难题。因此,可通过技术进步向空间和地下两个方向发展、增强土地的利用率;还可将资本和劳动等要素的自由灵活流动与不可流动的土地要素结合,将土地政策与其他政策相配合,使土地政策成为宏观调控的手段。     

OLD WINE FOR NEW BOTTLES: PUTTING OLD GROWTH THEORY BACK IN THE NEW

This paper shows how the mechanisms of endogenous growth can readily be incorporated within old growth theory, thereby resolving the principal impasse that stymied old growth theory. The key mechanism is the technological progress function which was originally developed by Kaldor (1957). The growth effects of monetary and fiscal policy operate through three channels. The first is the 'portfolio composition' channel, with policy serving to alter the money-capital mix of portfolios; the second is the money in the production function channel, with policy serving to alter the relative use of money and capital as inputs; the third is the money in the technological progress function channel, with policy affecting the dynamic allocative efficiency of investment via its impact on the level of financial intermediation. Since money and capital both enter the technological progress function. policies that affect the demands for money and capital affect the steady state rate of growth.     

Monetary and fiscal policy interactions: Evidence from emerging European economies

This paper examines the interactions between fiscal and monetary policy for some former transition, emerging European economies over the 1995Q1–2010Q4 period by using a Markov regime-switching model. We consider the monetary policy rule proposed by Taylor (1993) and the fiscal policy rule suggested by Davig and Leeper (2007) in accounting for monetary and fiscal policy interactions. Empirical results suggest that monetary and fiscal policy rules exhibit switching properties between active and passive regimes and all countries followed both active and passive monetary policies. As for fiscal policy, the Czech Republic, Estonia, Hungary, and Slovenia seem to have alternated between active and passive fiscal regimes while fiscal policies of Poland and the Slovak Republic can be characterized by a single fiscal regime. Although the policy mix and the interactions between monetary and fiscal policy point a diverse picture in our sample countries, the monetary policy seems to be passive in all countries after 2000. This finding is consistent with the constraints imposed by European Union enlargement on monetary policy.     

Fiscal Policy in New EU Member States: Go East,Prudent Man!

The European Union accepted 10 new member states (NMS) in 2004, eight of which were former socialist countries. New members have had to adjust their economic policies to EU standards. Perhaps most difficult has been fiscal policy, where NMS must comply with the Stability and Growth Pact rules. Indeed, four of the eight post-communist NMS breached the SGP limits and were put in the Excessive Deficit Procedure. While the SGP is being modified, fiscal policy is set to remain on the agenda for all NMS.

This article analyses fiscal policy in the eight NMS, focusing primarily on the period immediately preceding their EU accession. The structure and scale of these countries' fiscal policy are analysed and the main trends in the revenue and expenditure of their public budgets identified. Then the dynamics of fiscal policies in the NMS are explored and the main factors in them isolated. The authors show how much of the consolidation was due to the fiscal authorities' effort and how much was caused by external factors. They also show that most NMS governments have run rather inconsistent fiscal policies and have not consolidated their budgets appropriately, postponing politically difficult consolidation measures. However, they also identify a group of countries characterised by strong reform efforts and responsible fiscal policy making, supported usually by strong economic growth. In this context, room is given to economic as well as political economy factors.     

The Role of Fiscal and Monetary Policies in Sustaining Growth With Stability in India*

The performance of the Indian economy in recent years has attracted increasing international interest. This paper focuses on the role of fiscal and monetary policies in the evolution of the Indian economy over the years, with particular attention being given to the reforms undertaken in these policies since the early 1990s. The coordination of fiscal and monetary policies has been crucial in the sequencing of the economic reform process carried out since the early 1990s. Monetary policy aims to maintain a judicious balance between price stability and economic growth. With the opening up of the Indian economy and the spread of financial sector reforms aimed at functional autonomy, prudential strengthening, operational efficiency, and competitiveness of banks, considerations of financial stability have assumed greater importance in recent years alongside the increasing openness of the Indian economy. The biggest challenge facing the conduct of fiscal and monetary policy in India is to continue the accelerated growth process while maintaining price and financial stability. Therefore, the self‐imposed rule‐based fiscal correction at both the national and subnational levels has to be consolidated and carried forward. The existence of a high level of fiscal deficit also contributes to the persistence of an interest rate differential with the rest of the world, which then also constrains progress toward full capital account convertibility. The success achieved in revenue buoyancy through tax rationalization and compliance has to be strengthened further.     

New European Banking Governance and Crisis of Democracy: Bank Restructuring and Privatization in Slovenia

ABSTRACT

The paper makes three contributions to the understanding of the post-crisis European banking governance. First, it offers a more comprehensive approach to banking governance, beyond the Banking Union, through its concept of ‘New European Banking Governance’ (NEBG) that incorporates EU state aid rules and fiscal regulations. Second, it considers the impact of NEBG on democratic institutions and processes in EU member states, an under-researched topic in the literature on European banking governance. Finally, through its in-depth case study of Slovenia it considers the NEBG in relation to peripheral Eurozone states. It argues that the post-crisis banking governance framework of the EU not only severely constrained the Slovenian state in its policy choices but rearranged its policy-making institutions in a way that restricted and continues to restrict democratic banking policy formation.     

我国财政宏观调控政策及其转型取向--兼论以农村教育为重点的财政调控

经济周期波动及其政府宏观调节是与市场经济共生的现象.经典理论形成了低谷和顶峰两极时期的财政对策,但忽视转型期的调控政策.我国新一轮增长拐点时期,将过去实施的积极财政政策转型为稳健的财政政策,财政调控的目标、手段、方式都需要发生改变.稳健的财政政策目标应该由单纯追求增长率转变为扩大就业,由类行政的直接调控转变为利用市场对企业施行间接调控,当前财政重点发展农村教育有助于实现经济由短期波动到长期增长的平稳过渡,并由此延长经济增长期.     

The identification of fiscal and monetary policy in a structural VAR

Good economic management depends on understanding shocks from monetary policy, fiscal policy and other sources affecting the economy and their subsequent interactions. This paper presents a new methodology to disentangle such shocks in a structural VAR framework. The method combines identification via sign restrictions, cointegration and traditional exclusion restrictions within a system which explicitly models stationary and non-stationary variables and accounts for both permanent and temporary shocks. The usefulness of the approach is demonstrated on a small open economy where policy makers are actively considering the interaction between monetary and fiscal policies.     

Intertemporal Budget Policies and Macroeconomic Adjustment in Indebted Open Economies

This paper analyzes the role of government intertemporal budget policies in a growing open economy including nominal assets in the presence of an upward sloping supply of debt. This introduces transitional dynamics that influence the effects of government policy instruments on economic growth and the long term fiscal liability. It is shown that capital income taxes or a combination of tax‐cum‐expenditure or government expenditure alone can balance the long term intertemporal government budget constraint. However, those results are shown to depend critically upon the extent of distortion in capital flows brought about the upward sloping supply of debt.     

Fiscal financing and the efficacy of fiscal policy in Korea: An empirical assessment with comparison to the U.S. evidence

This paper aims to assess the empirical implications of fiscal financing in Korea and study how they differ from those of the U.S. We estimate two versions of the dynamic stochastic general equilibrium (DSGE) model—a small open economy (SOE) model for Korea and its closed economy counterpart for the U.S.—in which the former nests the latter as a special case. The fiscal policy specification posits that government spending, lump-sum transfers, and distortionary taxation on labor income, capital income and consumption expenditures respond to the level of government debt and the state of economic activity. Analysis of the data from 2000 to 2015 shows that distortionary capital taxes play a critical role in stabilizing government debt in the U.S., whereas non-distorting fiscal instruments are the primary means of fiscal adjustment in Korea. Regarding the magnitude of debt-financed fiscal stimuli, the substantial trade openness of Korea is significant in that it produces relatively smaller government spending and transfer multipliers compared to the U.S.     

Climate-change adaptation: The role of fiscal policy

Climate change and natural disasters have important consequences on fiscal sustainability, especially for developing countries with limited financial resources and underdeveloped institutions. The paper contributes to shed light on the role of fiscal policy in climate-change adaptation, which aims at containing the economic damage of climate change. We use an overlapping generations (OLG) model for a small open economy in which adaptation reflects the extent to which public policies reduce the negative influence of climate change on the capital depreciation rate. Adaptation includes both preventive measures, i.e. investment in infrastructure, and remedial measures, i.e. post-disaster relief and reconstruction. Through model simulations we assess the costs and benefits of both remedial and preventive actions. We find that preventive intervention leads to higher GDP growth rates than either taking no action or waiting until remedial action is necessary. However, the evidence shows that, due to high costs of early adaptation and budgetary constraints, countries tend to focus on late corrective actions, also relying on international assistance. Given the expected increase in climate-related risks, a comprehensive strategy including both preventive and corrective actions would be desirable to strengthen resilience to shocks and alleviate the financial constraints, which particularly affect small countries.     

Financial openness and economic policy

Economic policy works via two interrelated areas: changes in supply-demand balances and changes in relative prices. Effectiveness of economic policies then depends on the environment in which a given economy operates. The analysis shows that traditional economic policies of fostering growth via public sector investments crucially depend on the private capital account being closed (practically, on the capital mobility being low). An open capital account requires a different set of policies, aimed at facilitating the functioning of private markets and an increase of domestic private savings. This shift in the policy and growth paradigm constitutes the biggest challenge to the global economic community in the beginning of the 21st century.     

Compatibility between monetary and fiscal policy under EMU

The debate over the Stability and Growth Pact (SGP) as a part of European Monetary Union, has highlighted the need to assess the extent to which fiscal policies of union members should be constrained as a pre-requisite for price stability within the union. In this paper, we develop a two country open economy model, where each country has overlapping generations of finitely lived consumers who supply labour to imperfectly competitive firms which can only change their prices infrequently. We examine the case where the two countries have formed a monetary union, but where the fiscal authorities remain independent. We show that the fiscal response required to ensure stability of the real debt stock is greater when consumers are not infinitely lived. In principle, this allows for some compensating behaviour between governments, but we show that the scope for compensation is limited. The monetary authority can abandon its active targeting of inflation to stabilise the debt of at most one fiscal authority, and any other combination of policies will either result in price level indeterminacy and/or indefinite transfers of wealth between the two economies. Finally, in a series of simulations we show that fiscal shocks have limited impact on output and inflation provided the fiscal authorities meet the (weak) requirements of fiscal solvency. However, when monetary policy is forced to abandon its active targeting of inflation, then fiscal shocks have a much greater impact on both output and inflation.     

Institutional constraints,double imbalances and policy option—global financial crisis and China’s fiscal policy

With the enormous development of China’s economy, we re-implement the proactive fiscal policy not only to response to the global financial crisis, but also to take advantage of the opportunity to resolve the institutional constraints, transform China’s economic growth pattern, keep stability and promote the sustainable growth of the economy. So the goal of fiscal policy should weigh easing the economic crisis against long-term stability and the development of economy. The past experiences of fiscal policy practices in China indicate that the traditional simple counter-cyclical fiscal policy may be able to pull the economy out of recession, but it has little effect on automatic recovery of the economy. Therefore, the fiscal policies need to hang on the entire reform process and the whole economic structure adjustment. This paper firstly reveals the root of “double imbalances” and institutional constraints, then analyzes the paradox between such constraints, and discusses the space of positive fiscal policy.