Macroeconomic Policies for Slovenia in the “Great Recession”
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The paper analyzes the effects of different reactions of fiscal (and to some extent monetary) policies to the Great Recession in Slovenia. We use the model SLOPOL8.1, an econometric model of the Slovenian economy, to simulate the effects of the global crisis under the assumption of no-policy reactions, i.e. assuming that macroeconomic policies are conducted without attempting to deal with the effects of the recession. Moreover, we investigate whether (and if so, how) fiscal policy can reduce or even annihilate the macroeconomic effects of the recession. It turns out that in order to achieve reasonable rates of growth and of unemployment, a highly expansionary design of fiscal policies is required, which is neither realistic nor sustainable. There are strong trade-offs between countercyclical fiscal policies and the requirements of fiscal solvency. Acceptable fiscal policies are mildly countercyclical and are not able to shelter the Slovenian economy from the negative effects of a slump like that occurring during the Great Recession.
KeywordsMacroeconomics Fiscal policy Economics of transition Slovenia Crisis Public debt
JELE50 E62 O57
Earlier versions of this paper were presented at Conference “Financial and Economic Crisis: Causes, Consequences and the Future” in Brno, Czech Republic, November 25–25, 2010, at the EBES 2011 Conference, October 13–15, 2011, in Zagreb, Croatia, and at the 73rd International Atlantic Economic Conference, March 28–31, 2012, Istanbul, Turkey. Comments from participants at these meetings helped improving the content of this paper. The authors also gratefully acknowledge financial support from the EU Commission through project MRTN-CT-2006-034270 COMISEF and from the Jubiläumsfonds of the Oesterreichische Nationalbank (project no. 12166).
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