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Evaluating the Outcomes of Monetary and Fiscal Policies in the EU in Times of Crisis: A PLS-SEM Approach

Author

Listed:
  • Aleksandra Fedajev

    (Technical Faculty in Bor, University of Belgrade, 11000 Belgrade, Serbia)

  • Danijela Pantović

    (Faculty of Hotel Management and Tourism, University of Kragujevac, 34000 Kragujevac, Serbia)

  • Isidora Milošević

    (Technical Faculty in Bor, University of Belgrade, 11000 Belgrade, Serbia)

  • Tamara Vesić

    (Faculty of Business Economics and Entrepreneurship, Mitropolita Petra 8, 11000 Belgrade, Serbia)

  • Aleksandra Jovanović

    (Faculty of Business Economics and Entrepreneurship, Mitropolita Petra 8, 11000 Belgrade, Serbia)

  • Magdalena Radulescu

    (Department of Finance, Accounting, Economics, University of Pitesti, 110040 Pitesti, Romania
    Institute of Doctoral and Post-Doctoral Studies, University Lucian Blaga of Sibiu, 550025 Sibiu, Romania)

  • Maria Cristina Stefan

    (Department of Management, University Valahia of Targoviste, 130004 Targoviste, Romania)

Abstract

The asymmetric level of integration within the European Union (EU) regarding membership in the European Monetary Union (EMU) has resulted in inconsistent responses to crises such as the Great Recession of 2007–2009 and the European sovereign debt crisis of 2010–2013. Furthermore, it has led to varying outcomes of monetary and fiscal policies implemented across EU countries. This paper aims to investigate the impact of monetary and fiscal policies on economic development and employment through the inflation channel in the EU between 2007 and 2015, using Partial Least Squares Structural Equation Modeling (PLS-SEM). The results indicate that the outcomes of monetary policy have been mixed between EMU and non-EMU countries, resulting in different measures and negative spillover effects of the European Central Bank’s (ECB) policy on countries outside of the EMU. Meanwhile, the ability of fiscal policy to lower inflation and boost economic growth and employment has been limited, which means that the impact of fiscal policy on both economic development and employment and inflation has been minor. Based on the findings of this study, there should be better coordination of monetary and fiscal policies at the EU level to support the macroeconomic stability of the Union during times of crisis.

Suggested Citation

  • Aleksandra Fedajev & Danijela Pantović & Isidora Milošević & Tamara Vesić & Aleksandra Jovanović & Magdalena Radulescu & Maria Cristina Stefan, 2023. "Evaluating the Outcomes of Monetary and Fiscal Policies in the EU in Times of Crisis: A PLS-SEM Approach," Sustainability, MDPI, vol. 15(11), pages 1-14, May.
    • Handle: RePEc:gam:jsusta:v:15:y:2023:i:11:p:8466-:d:1153723
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