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The evaluation of fiscal and monetary policy in Croatia over a business cycle

Author

Listed:
  • Manuel Benazic

    (Juraj Dobrila University of Pula, Faculty of Economics and Tourism “Dr. Mijo Mirkoviæ”, Pula, Croatia)

  • Daniel Tomic

    (Juraj Dobrila University of Pula, Faculty of Economics and Tourism “Dr. Mijo Mirkoviæ”, Pula, Croatia)

Abstract

The aim of this paper is to evaluate the controversies of fiscal and monetary policies in defining business cycles in Croatia, i.e. to answer the question whether they can, and in what way, determine the cyclical movements. Using Hodrick-Prescott filter for extracting cycles from selected macroeconomic variables for the period 1994-2013, this paper gives a reflection on the past relationship between the characteristics of Croatian fiscal and monetary policies by testing whether these two economic pillars are in fact coordinated over a business cycle. We found that both fiscal and monetary variables exhibit counter-cyclical behaviour with relatively weak correlation to the real GDP suggesting that they are coordinated during a business cycle but their reach is ambiguous. Finally, we conclude that fiscal and monetary policies in Croatia are constrained by internal and external factors, and thus they often cannot accomplish their counter-cyclical role.

Suggested Citation

  • Manuel Benazic & Daniel Tomic, 2014. "The evaluation of fiscal and monetary policy in Croatia over a business cycle," Zbornik radova Ekonomskog fakulteta u Rijeci/Proceedings of Rijeka Faculty of Economics, University of Rijeka, Faculty of Economics and Business, vol. 32(1), pages 75-99.
    • Handle: RePEc:rfe:zbefri:v:32:y:2014:i:1:p:
    as

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    References listed on IDEAS

    as
    1. Fatas, Antonio & Mihov, Ilian, 2001. "Government size and automatic stabilizers: international and intranational evidence," Journal of International Economics, Elsevier, vol. 55(1), pages 3-28, October.
    2. Philip R. Lane, 2003. "Business Cycles and Macroeconomic Policy in Emerging Market Economies," International Finance, Wiley Blackwell, vol. 6(1), pages 89-108, March.
    3. World Bank, 2011. "Fiscal Responsibility Framework in Croatia : Lessons from the Past, Rules for the Future," World Bank Publications - Reports 12895, The World Bank Group.
    4. Young Lee & Taeyoon Sung, 2007. "Fiscal Policy, Business Cycles and Economic Stabilisation: Evidence from Industrialised and Developing Countries," Fiscal Studies, Institute for Fiscal Studies, vol. 28(4), pages 437-462, December.
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    More about this item

    Keywords

    macroeconomic management; policy evaluation; fiscal policy; monetary policy; business cycles; Hodrick-Prescott filter; Croatia;
    All these keywords.

    JEL classification:

    • E30 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - General (includes Measurement and Data)
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • E61 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Policy Objectives; Policy Designs and Consistency; Policy Coordination
    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy; Modern Monetary Theory

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