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Investigating the Cyclical Behavior of Fiscal Policy in the Republic of Macedonia during the Period of Transition

Anita Angelovska Bezoska (), Jane Bogoev (), Ana Mitreska () and Maja Kadievska Vojnovik ()
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Anita Angelovska Bezoska: National Bank of the Republic of Macedonia
Ana Mitreska: National Bank of the Republic of Macedonia
Maja Kadievska Vojnovik: National Bank of the Republic of Macedonia

No 2011-01, Working Papers from National Bank of the Republic of North Macedonia

Abstract: The main aim of this research is to investigate the cyclical behavior of fiscal policy with respect to output gap fluctuations in the Republic of Macedonia during the period 1991-2009. We use two different fiscal policy measures: 1) the cyclically unadjusted primary budget balance and 2) the cyclically adjusted primary budget balance as a proxy indicator of the fiscal policy stance. This analysis also aims to explore whether there was a substantial change in the fiscal policy behavior prior to 1996 due to the turbulent initial period of transition and the switch in monetary policy strategy. We additionally control for other factors that also seem to have had a significant impact over the fiscal policy behavior, such as the armed conflict in 2001 and the impact of public debt as a proxy indicator of budget financing constraints. The estimated results with respect to both measures, the cyclically unadjusted and cyclically adjusted budget balance, indicate differences in the fiscal policy behavior prior to and after 1996. More precisely, the results imply that the fiscal policy behavior prior to 1996 was procyclical, whereas afterwards the fiscal policy became countercyclical. These results are robust to different measures of the output gap and different frequency of the data sets.

Keywords: fiscal policy; cyclically adjusted balance; output gap; monetary policy change (search for similar items in EconPapers)
JEL-codes: C35 D10 I31 P20 (search for similar items in EconPapers)
Pages: 48 pages
Date: 2011, Revised 2011
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http://www.nbrm.mk/WBStorage/Files/WebBuilder_Croa ... Vol13No1pp57_104.pdf First version, 2011 (application/pdf)

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