BUDGETARY DISCIPLINE AND INTERNAL DEVALUATION – ESTONIAN METHOD TO OVERCOME THE CRISIS

Bernadeta Baran ()
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Bernadeta Baran: Wroclaw University of Economics, Poland

Equilibrium. Quarterly Journal of Economics and Economic Policy, 2014, vol. 9, issue 2, 9-23

Abstract: The purpose of this article is to outline the main reasons and effects of the Estonian adjustments in response to the global financial and economic crisis. Estonia chose significant budgetary savings, in contrast with most other countries stimulating their economies by expansionary fiscal policy and leading to fiscal imbalances and growing public debts. Estonia did not carry out a devaluation of its currency, but restored competitiveness through internal devaluation. This strategy allowed Esto-nia to maintain a fixed exchange rate, fulfill the Maastricht criteria and adopt the single currency. As a result, Estonia has increased the stability of its economy, restoring and enhancing confidence among investors. At the same time, the Estoni-an strategy confirmed the existence of non-Keynesian effects – the positive econom-ic results of public spending reduction.

Keywords: internal devaluation; budgetary adjustments; competitiveness; crisis (search for similar items in EconPapers)
JEL-codes: F41 F42 F63 G01 H30 H60 (search for similar items in EconPapers)
Date: 2014
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Persistent link: https://EconPapers.repec.org/RePEc:pes:ierequ:v:9:y:2014:i:2:p:9-23

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