MONETARY VERSUS FISCAL DOMINANCE IN EMERGING EUROPEAN ECONOMIES ; MONETARNA VERSUS FISKALNA DOMINACIJA U EVROPSKIM EKONOMIJAMA U RAZVOJU

Abstract

The conventional macroeconomic paradigm is that monetary policy provides the nominal anchor for inflation expectations and that fiscal policy is disciplined in implementing credible and timely revenue-expenditure measures when debt rises, in order to ensure sustainability. In this scenario monetary policy is active, whereas fiscal policy is passive, which is referred to as monetary dominance. However, the proponents of the Fiscal Theory of the Price Level emphasize that another regime may be possible - the one of fiscal dominance. In this setup, primary balance follows some arbitrary path, not necessary compatible with the evolution of government debt, and monetary policy is faced with limited room for manoeuvre as it has no option but to adjust to fiscal developments. Following these theoretical foundations, the aim of this paper is to empirically ascertain the prevailing policy regime (monetary versus fiscal dominance) in five emerging European economies (Hungary, Romania, Bulgaria, Serbia and Macedonia). In line with expectations, results overwhelmingly suggest that monetary policy may have been subordinated to fiscal policy over the period of analysis in all economies under scrutiny and that fiscally-led regime prevailed. ; Konvencionalno makroekonomsko stanovište podrazumeva da je monetarna politika ključna za usidravanje inflacionih očekivanja, dok je fiskalna politika disciplinovana u sprovođenju kredibilnih i blagovremenih prihodno-rashodnih mera u slučaju rasta javno duga, a kako bi osigurala održivost. U ovom scenariju monetarna politika je aktivna, dok je fiskalna politika pasivna, što se u literaturi označava kao monetarna dominacija. Međutim, zagovornici fiskalne teorije nivoa cena naglašavaju da može postojati još jedan režim – režim fiskalne dominacije. U ovoj postavci, primarni budžetski saldo prati neki arbitraran put, koji nije nužno kompatibilan sa evolucijom javnog duga, a monetarna politika se suočava sa ograničenim prostorom za manevar budući da na raspolaganju nema mnogo opcija i u ...