This study analyses the relationship between governmental expenditure and economic growth rate for 8 Eastern-European countries with data for 1995-2014 using the ARDL model. The main goal of the present study is to test the presence of a non-linear-Armey Curve type-relationship between the government size and economic growth and also to find an optimal level of public spending which maximizes economic growth. Our results reveal the occurrence of a significant cointegration of public spending and economic growth for all considered countries and show that the current share of public spending within the Gross Domestic Product (GDP) exceeds the optimal level calculated for the three countries for which the Armey-type phenomenon occurs. Also, the results suggest that the optimal percentage of governmental spending varies between 37 % and 41 % and the present level is higher than the optimal level for Bulgaria, Hungary and Romania. The outstripping of the optimal level may conclude to the idea that the weight of public sector should be slightly decreased in these countries since the public sector is not able to efficiently cope with its resources. Based on the study results, the weight of public expenditure should be reduced while the efficiency of public spending programs should be increased.
Fiscal policy plays an important role in stimulating economic activity, but it also has a significant influence in securing monetary stability in an economy. Our study aims to analyse the asymmetric effects of fiscal policy on inflation and economic activity on twelve post-communist European countries that are associated with the European Union (EU) by either membership or by being members of the Eastern European Partnership (EaP). We explore the asymmetric effects on inflation and economic activity by using a Pooled Mean Group (PMG) estimator. The results show that in the long run, the fiscal policy instrument negatively influences both inflation and economic activity; in the short run, the effects are not significant. A Nonlinear Autoregressive Distributed Lag (NARDL) model was estimated individually for each country. Our main findings are that the cumulative impact of fiscal policy generates an inflationary growth effect for the EU countries in our sample.
The objective of this paper is to verify the hypotheses presented in the literature on the causal relationship between inflation and its uncertainty, for the newest EU countries. To ensure the robustness of the results, in the study four models for inflation uncertainty are estimated in parallel: ARCH (1), GARCH (1,1), EGARCH (1,1,1) and PARCH (1,1,1). The Granger method is used to test the causality between two variables. The working hypothesis is that groups of countries with a similar political and economic background in 1990 and are likely to be characterized by the same causal relationship between inflation and inflation uncertainty. Empirical results partially confirm this hypothesis.Jel ClassificationC22, E31, E37.
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