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The results of macroeconomic stabilization in Southeast European countries: Some empirical evidence

The paper analyses the results of the stabilization policies in the SEECs in stabilizing the inflation and output and what is the price paid for the macroeconomic stability. The analysis shows that those SEECs that have implemented monetary targeting accompanied by floating exchange rate regime, were not completely successful in inflation reduction. Furthermore, it seems that fighting inflation by reducing aggregate demand via a restrictive monetary policy may become extremely costly because these countries achieved slower GDP growth and did not succeed to reach the lasting economic recovery. On the other hand, another group of SEECs that have chosen exchange rate targeting, have maintained the one digit leve inflation in most years and were more successful in creating a more stabile environment for long-term recovery. It seems that stabile nominal exchange rates as a nominal anchor, supported by the complimentary nominal wage anchor, relieved the monetary policy from fighting inflationary processes and therefore made the better support for growth.

stabilization policy; inflation; GDP growth; SEECs

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