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

Manuel Benazic () and Daniel Tomic
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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

Zbornik radova Ekonomskog fakulteta u Rijeci/Proceedings of Rijeka Faculty of Economics, 2014, vol. 32, issue 1, 75-99

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.

Keywords: macroeconomic management; policy evaluation; fiscal policy; monetary policy; business cycles; Hodrick-Prescott filter; Croatia (search for similar items in EconPapers)
JEL-codes: E30 E52 E61 E62 (search for similar items in EconPapers)
Date: 2014
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