The Austerity Programme: A Strategic Reorientation?
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The analysis of Hungary’s ‘twin deficit problem’ (Erdös 1995) in 1993–94 serves in this book to highlight the effects of a violation of the monetary condition of catch-up development for a small and open transitional economy (economic policies which are conducive to the fulfilment of this overriding condition were illustrated in Figure 7.6). In light of the results drawn from the analysis into the constraints and pportunities of monetary stabilisation and integration with respect to economic development, it was not surprising (and indeed was inevitable) that the Hungarian policies of public expenditure well in excess of tax revenues (deficit spending), administered capital imports (rooted in the adherence to the ‘two-gap’ approach) and premature integration (effecting import substitution) gave rise to a severe destabilisation of Hungary’s monetary constitution.
KeywordsExchange Rate Interest Rate Monetary Policy Central Bank Current Account
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