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Dynamic effects of fiscal policy in Croatia: confronting New-Keynesian SOE theory with empirics

Milan Deskar-Škrbiæ ()
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Milan Deskar-Škrbiæ: Senior Economic Analyst,Erste&Steiermarkische bank, Ivana Luèiæa 2a, 10000 Zagreb

Authors registered in the RePEc Author Service: Milan Deskar-Škrbić

Zbornik radova Ekonomskog fakulteta u Rijeci/Proceedings of Rijeka Faculty of Economics, 2018, vol. 36, issue 1, 83-102

Abstract: In this paper we calibrate a small open economy (SOE) New-Keynesian DSGE model for the Croatian economy. The main focus of the paper is on the effects of fiscal policy, more precisely government consumption, on employment, output, inflation and trade balance. After we analyse the model impulse responses we confront these results with the empirical results of VAR model. Our results indicate that the presented DSGE model can be a useful starting point and a toolkit in fiscal policy analysis in Croatia as estimated impulse responses from VAR model mostly match impulse responses from the calibrated model. Also, empirical results indicate that fiscal policy has a significant effect on macroeconomic developments in Croatia. Thus, it is a responsibility of fiscal policy makers to prudently use and adjust fiscal instruments in such a way that fiscal policy can always have a counter-cyclical, stabilizing effect on Croatian economy.

Keywords: fiscal policy; DSGE; VAR; Croatia (search for similar items in EconPapers)
JEL-codes: E62 H30 (search for similar items in EconPapers)
Date: 2018
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