Klaus Weyerstrass

SLOPOL1: A macroeconomic model for Slovenia

This paper presents the specification and estimation of SLOPOL1 (Slovenian Economic Policy Model, Version 1), a macroeconometric model for Slovenia. Since Slovenia became an independent state in 1991, the available time series are very short and unreliable. In order to increase the degrees of freedom, quarterly data are used. The model contains behavioral equations for factor demand, potential gross domestic product, imports, the wage-price system, private consumption and labor supply of households, money and foreign exchange markets, and the public sector. Due to data constraints, the supply side and household consumption have not been further disaggregated. The capability of the model to reproduce the behavior of the endogenous variables in an ex post simulation can be regarded as satisfactory.

Macroeconomic Policies for Slovenia after the “Great Recession”

The paper analyses the effects of different global developments and the resulting reactions of fiscal policies after the “Great Recession” on the Slovenian economy. We use the macro model SLOPOL8.1, an econometric model of the Slovenian economy, to simulate the effects of different scenarios for the global economy under the assumption of “no-policy” reactions, i.e. assuming that macroeconomic policies are conducted without attempting to deal with the effects of the world economy. Moreover, we investigate how fiscal policy should react under each scenario if it aims at minimizing some intertemporal objective function containing important macroeconomic policy targets as arguments. It turns out that the development of the Slovenian economy depends strongly on world business cycles. If another crisis follows the “Great Recession”, a highly expansionary design of fiscal policies is required in order to achieve reasonable rates of growth or levels of output, which is neither realistic nor sustainable. There are strong trade-offs between countercyclical fiscal policies and the requirements of fiscal solvency. Although acceptable fiscal policies have to be mildly countercyclical, they are not able to protect the Slovenian economy from the negative effects of another slump such as the one occurring during the “Great Recession”.

Towards an Objective Function for Slovenian Fiscal Policy-making: A Heuristic Approach

In this paper, we use an optimum control approach to construct an objective function for Slovenian fiscal policy-making. At first, a quadratic objective function with variables that might be of interest to a policy-maker is optimized subject to the econometric model SLOPOL1 of the Slovenian economy. Next, optimization with variations of parameters of the objective function is performed. These variations concern the weights and values of the target variables, the discount factor, and the planning horizon. The aim is to obtain an objective function that comes as close as possible to the preferences of fiscal policy-makers in Slovenia, so as to develop a decision support system for economic policy-makers for this country.

Economic spillovers, structural reforms and policy coordination in the euro area

Economic spillovers, structural reforms and policy coordination in the Euro Area: An overview.- Budgetary spillovers and short-term interest rates.- Budgetary spillovers and long-term interest rates.- Budgetary stabilisation and the level of public debt.- Spillovers from economic reform.- Macroeconomic and welfare effects of structural and budgetary policies: spillovers in the MSG3 model.- Have Europes labour markets become more flexible? An exercise in measuring the relative flexibility of wages across countries and time.

Economic Policies on Slovenia's Road to the Euro Area

On 1 January 2007, Slovenia was the first new EU member state to enter the euro area. Since June 2004, the Slovenian tolar participated in the exchange rate mechanism ERM-II with a central parity of 239.64 against the euro. This parity was also the conversion rate upon euro area accession. Applying a macroeconometric model of Slovenia, this paper analyses the macroeconomic effects of different conversion rates. These simulations are compared to a scenario with flexible exchange rates. The best results are obtained with the actual conversion rate. In addition, it is shown that the labour market performance can be significantly improved by cutting non-wage labour costs. # 2007 Elsevier B.V. All rights reserved. JEL classification: C53; E17; F15

How Should Slovenia Design Fiscal Policies in the Government Debt Crisis

ABSTRACT We investigate how fiscal policies should be designed in Slovenia during the next few years. Using the SLOPOL model, an econometric model of the Slovenian economy, we analyze the effects of different fiscal policies using simulations and determine optimal fiscal policies for Slovenia. We show that the optimal design of fiscal policies is rather close to the austerity course as detailed in the Slovenian Stability Program, revealing the small scope of possible alternative fiscal stabilization policies available due to the relatively low effectiveness of the fiscal instruments with respect to their influence on the business cycle in the Slovenian economy.

A Macroeconometric Model for Bosnia and Herzegovina

This paper describes and evaluates a quarterly macroeconometric model for Bosnia and Herzegovina. Following the declaration of independence in 1992, Bosnia and Herzegovina plunged into a war that ended in 1995 with the Dayton/Paris peace agreement. The war caused major destruction as well as sharply rising inflation and unemployment. In addition, the peace agreement led to a significant fragmentation of competences between different entities. The unfavorable starting position of the transformation process toward a parliamentary democracy and a market economy, as well as the fragmented political structure, complicate the building of a macroeconomic model and limit the availability of reliable data. Data before 1999 are strongly influenced by the effects of the war and transformation. Moreover, some aggregates, such as the capital stock and quarterly national accounts series, are not officially published and had to be constructed. Nevertheless, the macroeconometric model can replicate the endogenous variables reasonably well.

Spillovers from economic reform

In March 2000, the heads of the European Union countries proclaimed the aim of making Europe the “most competitive and dynamic knowledge-based economy in the world, capable of sustaining economic growth with more and better jobs and greater social cohesion” by 2010. To achieve this overall goal, a set of economic and social reforms called the “Lisbon Strategy” or the “Lisbon Agenda” to be undertaken was defined. Several objectives, grouped in five dimensions (employment, innovation and research, structural economic reforms, social cohesion, environment) were set up. It was agreed upon that the European Commission should annually prepare progress reports in order to evaluate the progress the Member States have made in achieving the Lisbon goals. In its mid-term review in 2005, the European Commission concluded that the implementation of reforms in line with the Lisbon Strategy had in many areas been too slow. In particular, the growth performance of the past five years had been disappointing, particularly as compared to other regions of the world economy such as the US and certain Asian economies. Therefore, the Lisbon Strategy was revised, focussing on growth and the creation of employment (European Commission, 2005 and 2006).

Economic spillovers, structural reforms and policy coordination in the Euro Area: An overview

Macroeconomic policymaking in the European Union’s Economic and Monetary Union (EMU) is characterised by an asymmetric division of competences: While monetary policy is conducted centrally by the European System of Central Banks and the European Central Bank (ECB) in particular, structural and fiscal policies remain under the responsibility of the individual Member States, but they are subject to intensive consultation and multilateral surveillance. Article 99 of the EC Treaty calls on Member States to regard their economic policies as a matter of common concern and to coordinate them in the Council, with a view to achieving, inter alia, higher non-inflationary growth and a better standard of living.

Optimal Fiscal Policies After The "Great Recession": A Case Study For Slovenia.

In this paper, we investigate how fiscal policies should look like in a country like Slovenia. Slovenia’s present situation is characterized by high and rapidly increasing public debt and low growth. It is an interesting case because it is one of the few small open economies from Central and Eastern Europe that was already in the Euro Area before the “Great Recession”. Using the SLOPOL model, an econometric model of the Slovenian economy, we analyse the effects of different fiscal policies in Slovenia over the next couple of years by means of simulations. In particular, we determine optimal fiscal policies for Slovenia over the next few years. Using the OPTCON algorithm, we calculate approximately optimal fiscal policies under different scenarios. We show that an optimal design of fiscal policies depends essentially on the political preferences of Slovenian policy makers. Moreover, the simulations and optimizations reveal the small scope of possible alternative fiscal stabilization policies available due to the relatively low effectiveness of the fiscal instruments with respect to their influence on the business cycle in the Slovenian economy. (authors abstract)