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The Sustainability Of Serbia`S External Position: The Impact Of Fiscal Adjustment And External Shocks

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  • Emir Zildžović

Abstract

This paper studies the impact of fiscal policy and external shocks on the sustainability of Serbia’s external position. The key determinants of Serbia`s current account balance are identified using model averaging techniques and are compared with estimates obtained for other small open economies (Poland, Georgia, Morocco, Ukraine, and Estonia). The paper uses estimated influences of macrovariables on the current account balance to generate a rich set of possible outcomes for the external position of the country. The results suggest the importance of fiscal policy for the reduction of external imbalances in all countries in our sample. In particular, credible and sustained fiscal adjustment can reduce current account deficit and stabilize Serbia’s external position close to its current level over the medium term. The analysis also warns that lack of success in fiscal consolidation coupled with external shocks may easily push the external position onto an unsustainable path.

Suggested Citation

  • Emir Zildžović, 2015. "The Sustainability Of Serbia`S External Position: The Impact Of Fiscal Adjustment And External Shocks," Economic Annals, Faculty of Economics and Business, University of Belgrade, vol. 60(204), pages 31-60, January –.
    • Handle: RePEc:beo:journl:v:60:y:2015:i:204:p:31-60
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    More about this item

    Keywords

    Current account determinants; External sustainability; Model averaging; Transition countries; Fiscal policy; External shocks;
    All these keywords.

    JEL classification:

    • F32 - International Economics - - International Finance - - - Current Account Adjustment; Short-term Capital Movements
    • F37 - International Economics - - International Finance - - - International Finance Forecasting and Simulation: Models and Applications
    • F39 - International Economics - - International Finance - - - Other

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