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The asymmetric effects of fiscal policy on inflation and economic activity in post-communist European countries

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  • Mircea Asandului
  • Dan Lupu
  • Liviu-George Maha
  • Daniela Viorică

Abstract

Fiscal policy plays an important role in stimulating economic activity, but it also has a significant influence in securing monetary stability in an economy. Our study aims to analyse the asymmetric effects of fiscal policy on inflation and economic activity on twelve post-communist European countries that are associated with the European Union (EU) by either membership or by being members of the Eastern European Partnership (EaP). We explore the asymmetric effects on inflation and economic activity by using a Pooled Mean Group (PMG) estimator.The results show that in the long run, the fiscal policy instrument negatively influences both inflation and economic activity; in the short run, the effects are not significant. A Nonlinear Autoregressive Distributed Lag (NARDL) model was estimated individually for each country. Our main findings are that the cumulative impact of fiscal policy generates an inflationary growth effect for the EU countries in our sample.

Suggested Citation

  • Mircea Asandului & Dan Lupu & Liviu-George Maha & Daniela Viorică, 2021. "The asymmetric effects of fiscal policy on inflation and economic activity in post-communist European countries," Post-Communist Economies, Taylor & Francis Journals, vol. 33(7), pages 899-919, October.
    • Handle: RePEc:taf:pocoec:v:33:y:2021:i:7:p:899-919
    DOI: 10.1080/14631377.2020.1867430
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    Cited by:

    1. Abubakar, Attahir Babaji & Muhammad, Mansur & Mensah, Samuel, 2023. "Response of fiscal efforts to oil price dynamics," Resources Policy, Elsevier, vol. 81(C).
    2. Julie Ann Q. Basconcillo, 2023. "A nexus between fiscal policy and inflation: a case study of Indonesia using SVAR model," Public Sector Economics, Institute of Public Finance, vol. 47(4), pages 477-503.
    3. Rizvi, Syed Aun R. & Pathirage, Kasun, 2023. "COVID-19 policy actions and inflation targeting in South Asia," Journal of Asian Economics, Elsevier, vol. 84(C).
    4. Kazi Musa & Norli Ali & Jamaliah Said & Farha Ghapar & Oleg Mariev & Norhayati Mohamed & Hirnissa Mohd Tahir, 2023. "Does the Effectiveness of Budget Deficit Vary between Welfare and Non-Welfare Countries?," Sustainability, MDPI, vol. 15(5), pages 1-22, February.
    5. Jocelyne Zoumenou, 2023. "On the impact of fiscal policy on inflation: The case of fiscal rules," EconomiX Working Papers 2023-21, University of Paris Nanterre, EconomiX.
    6. Mirza, Nawazish & Naqvi, Bushra & Rizvi, Syed Kumail Abbas & Umar, Muhammad, 2023. "Fiscal or monetary? Efficacy of regulatory regimes and energy trilemma of the inflation reduction act (IRA)," International Review of Financial Analysis, Elsevier, vol. 90(C).
    7. Johnbosco Chukwuma Ozigbu, 2023. "Responsiveness of Headline Inflation to the Dynamics of Monetary Aggregates in Nigeria: A Structural Vector Autoregressive (SVAR) Approach," International Journal of Research and Innovation in Social Science, International Journal of Research and Innovation in Social Science (IJRISS), vol. 7(9), pages 1701-1711, September.
    8. Fatih Chellai, 2021. "What Can SVAR Models Tell us About the Impact of Public Expenditure Shocks on Macroeconomic Variables in Algeria? A Slight Hint to the COVID-19 Pandemic," Folia Oeconomica Stetinensia, Sciendo, vol. 21(2), pages 21-37, December.

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