The Empirical Economics Letters
Volume 5, Number 1, Page 1
January 2006
ISSN 1681 8997
Impacts of Macroeconomic
Policies on the Estonian Output: An Application of the Taylor Rule and the
IS-MP-AS Model
Professor of
Economics, SLU 10813,
Southeastern
Abstract: Extending the Taylor rule (1993, 1998, 1999) and the IS-MP-AS model (Romer, 2000), this article finds that real output in Estonia is negatively influenced by the expected inflation rate, the government deficit/GDP ratio, the world interest rate and country risk, and positively affected by real depreciation. Policy implications are that fiscal discipline pursued by the Estonian government is appropriate, that depreciation of the kroon to promote net exports would help the Estonian output, and that maintaining a sound fiscal, political and financial environment would reduce country risk and increase investment spending.
Keywords:
IS-MP-AS model,
JEL Classifications: O52, E52, E62