Impact of macroeconomic stability on private fixed investments in selected countries of Central and Southeast Europe

Milan Trajkovic
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Milan Trajkovic: National Bank of Serbia

Working Papers Bulletin from National Bank of Serbia

Abstract: The paper explores cause-and-effect relationship between macroeconomic stability and private fixed investments in the 2001–2019 period in Central and Southeast European countries applying inflation targeting regime in their monetary policies. Change in the inflation rate, share of the current account deficit in GDP and change in the share of fiscal deficit in GDP are used to proxy macroeconomic stability. For the purpose of the analysis, a fixed effects panel model has been estimated, with simultaneous control for standard investment determinants (quality of institutions, external demand, relative price of capital goods, real interest rate, openness of the economy and financial market development). The results show that improved indicators of macroeconomic stability have a positive impact on the share of private fixed investments in GDP, boosting the outlook for economic growth. The estimated model confirms that both improved quality of institutions and other standard private investment determinants enhance the share of private fixed investments in GDP. The analysis also indicates robustness both when applying the fixed or random effects panel and different control variables.

Keywords: private investments; inflation; current account deficit; fiscal deficit; quality of institutions; real interest rate; relative price of capital goods; external demand; openess of the economy; financial market development (search for similar items in EconPapers)
JEL-codes: E22 E3 E52 E61 (search for similar items in EconPapers)
Pages: 45 pages
Date: 2022-03
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