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PUBLIC DEBT AND MACROECONOMIC STABILITY IN REPUBLIC OF MACEDONIA
Abstract
The objective of this chapter is to examine the long run relationships between public debt and macroeconomic stability in the period of 2002 to 2010. In this research I use JohansenВ’s cointegration analysis and Vector Error Correction Model (VECM-henceforth) in order to test the long run effect of fiscal policy on real economic activity. Reviewing the literature, from both developed and countries in transition, I find that there is large disagreement concerning the empirical evidence for the effect of fiscal policy on real economic activity than is the case with monetary policy [1]. The empirical studies show mix and inconclusive result regarding the transmission mechanism of fiscal policy on real economic activity. In the recent years, the questions for reexamination of the suitable fiscal action on real economic activity have been increasing the interest, since the appearance of the single currency within the Euro-Zone and during the global financial crisis.
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