Monetary policy and unemployment in the Republic of serbia
Keywords:
Monetary policy, key policy rate, inflation, unemployment, VECM
Abstract
The main objective of the examination is to conclude whether monetary policy can influence the unemployment rate through the key policy rate and to analyze the relationship between inflation and unemployment in the Republic of Serbia, considering that the mentioned occurrences are major destabilizers of the developing economy. The Vector error correction model is used as the central model for inquiring the structure of the time series. From the cointegration equation of the VEC model, it can be concluded that there is no long-run equilibrium dynamic between the key policy rate and the unemployment rate in the Republic of Serbia over the period 2009M1-2019M6. Regarding the relationship between inflation and unemployment, there is a positive statistically significant effect of the inflation rate to the unemployment rate in the long-term. In the short term, results indicate that the key policy rate, as well as the inflation rate, do not cause the unemployment rate in the observed period.
References
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Ribba, A. (2006). The joint dynamics of inflation, unemployment and interest rate in the United States since 1980. Empirical Economics, 31(2), 497-511. doi:10.1007/s00181-005-0031-8
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Touny, M. A. (2013). Investigate the Long-Run Trade-Off between Inflation and Unemployment in Egypt. International Journal of Economics and Finance, 5(7), 115–125. doi:10.5539/ijef.v5n7p115
Baltagi, B. H. (2011). Econometrics (5th ed.). doi:10.1007/978-3-642-20059-5_14
Bartles, B. (2009). The monetary transmission mechanism in the euro area: A VAR-analysis for Austria and Germany (Working paper No.452). Retrieved from Kiel Institute for the World Economy (IfW) website: https://www.ifw-kiel.de/search/?q=The+monetary+transmission+mechanism+in+the+euro+area%3A+A+VAR-analysis+for+Austria+and+Germany
Benazić, M., & Rami, J. (2016). Monetary policy and unemployment in Croatia. Economic Research-Ekonomska Istraživanja, 29(1), 1038–1049. doi:10.1080/1331677x.2016.1211955
Brooks, C. (2008). Introductory Econometrics for Finance (2nd ed.). Retrieved from https://www.researchgate.net/publication/313899363_Introductory_Econometric_For_Finance
Bungin, S., Reljic, M., & Ivkovic, B. (2015). Estimation of transmission mechanism of monetary policy in Serbia. Industrija, 43(3), 143–158. doi:10.5937/industrija43-9076
Cioran, Z. (2014). Monetary policy, inflation and the causal relation between the inflation rate and some of the macroeconomic variables. Procedia Economics and Finance, 16, 391-401. doi:10.1016/S2212-5671(14)00818-1
Đorđević, M., & Lojanica, N. (2015). Kontroverze o statistički značajnoj povezanosti inflacije i ekonomskog rasta: Primer Republike Srbije. In V. Lekovic (Ed.): Institucionalne promene kao determinanta privrednog razvoja Srbije (pp.149-164). Kragujevac: Ekonomski fakultet Univerzitet u Kragujevcu. Retrieved from http://www.ekfak.kg.ac.rs/sr/nir/nir-naucni-skupovi/naucni-skup-instit-promene
Fetai, B., & Izet, Z. (2010). The impact of monetary policy and exchange rate regime on real GDP and prices in the Republic of Macedonia. Economic and Business Review, 12(4), 263–284. Retrieved from http://ojs.ebrjournal.net/ojs/index.php/ebr/article/view/103
Furtula, S., & Kostić, M. (2017). Key Policy Rate as the Main or Additional Instrument of Inflation Targeting Strategy in Serbia. Economic Themes, 55(2), 143–159. doi:10.1515/ethemes-2017-0009
Furtula, S., Durkalić, D., & Simionescu, M. (2018). Testing Phillips Curve For Serbian And Romanian Economy. Romanian Statistical Review, 3, 40–56. Retrieved from http://www.revistadestatistica.ro/wp-content/uploads/2018/09/RRS-3_2018_A4.pdf
Holden, D., & Perman, R. (1994). Unit Roots and Cointegration for the Economist. In B. B. Rao (Ed.), Cointegration (pp. 47-112). London, United Kingdom: Palgrave Macmillan. doi:10.1007/978-1-349-23529-2_3
Jevdjovic, G. (2014). Investigating the efficiency of monetary transmission channels in Serbia. Industrija, 42(2), 169–187. doi:10.5937/industrija42-6099
Josifidis, K., Allegret, J.-P., & Beker-Pucar, E. (2009). Monetary and exchange rate regimes changes: The cases of Poland, Czech Republic, Slovakia and Republic of Serbia. Panoeconomicus, 56(2), 199–226. doi:10.2298/pan0902199j
Levendis, J. D. (2018). Time Series Econometrics. doi:10.1007/978-3-319-98282-3_12
Lojanica, N. (2018). Macroeconomic effects of monetary transmission in Serbia: SVAR approach. Bankarstvo, 47(1), 14–31. doi:10.5937/bankarstvo1801014l
Lucas, R. E., & Sargent, T.J. (1979). After Keynesian Macroeconomics. Federal Reserve Bank of Minneapolis Quarterly Review, 3(2), 295-319. Retrieved from https://www.minneapolisfed.org/research/quarterly-review/after-keynesian-macroeconomics
Marjanović, G. (2010). Uticaj ekonomske krize na glavni tok ekonomske misli. Ekonomski horizonti, 12(2), 5-20. Retrived from http://horizonti.ekfak.kg.ac.rs/sites/default/files/Casopis/2010_2/1_Gordana_Marjanovic.pdf
Mihajlović, V. (2018). Implikacije novog konsenzusa u makroekonomskoj teoriji za ekonomsku politiku u Republici Srbiji. In: Ivanović, V., Nikolić, J., Jovković, B., Zlatanović, D., Kalinić, Z., Janković, N. (Eds.): Implikacije ekonomije znanja za razvojne procese u Republici Srbiji (pp.263-275). Kragujevac: Ekonomski fakultet Univerzitet u Kragujevcu. Retrived from http://www.ekfak.kg.ac.rs/images/Nir/ProjekatFakulteta/Zbornik2018-Implikacije_ekonomije_znanja_za_razvojne_procese_u_Republici_Srbiji.pdf
Mishkin, F. S. (2011). Monetary Policy Strategy: Lessons from the Crisis (NBER Working Paper No.16755). Retrieved from National Bureau of Economic Research website: https://www.nber.org/papers/w16755
National Bank of Serbia (2019). Monetary Policy Strategy and Objectives. Retrieved from https://www.nbs.rs/internet/english/30/30_3/index.html
National Bank of Serbia (2019). NBS Interest rates. Retrieved from https://www.nbs.rs/internet/english/80/index.html#i3
National Bank of Serbia (2019). Inflation report - Archive. Retrieved from https://www.nbs.rs/internet/english/90/ioi_arhiva.html
Pandit, B. L. (2015). The Global Financial Crisis and the Indian Economy. doi:10.1007/978-81-322-2395-5_5
Peersman, G., & Smets, F. (2001). The monetary transmission mechanism in the euro area: more evidence from VAR analysis (ECB Working Paper No.91). Retrieved from European Central Bank website: https://www.ecb.europa.eu/pub/pdf/scpwps/ecbwp091.pdf
Ribba, A. (2006). The joint dynamics of inflation, unemployment and interest rate in the United States since 1980. Empirical Economics, 31(2), 497-511. doi:10.1007/s00181-005-0031-8
Sasongko, G., & Huruta, A. (2019). The causality between inflation and unemployment: the Indonesian evidence. Business: Theory and Practice, 20, 1–10. doi:10.3846/btp.2019.01
Statistical Office of the Republic of Serbia (2019). Labour Force Survey 2008-2014. Retrieved from https://www.stat.gov.rs/en-US
Statistical Office of the Republic of Serbia (2019). Labour Force Survey from 2014. Retrieved from https://www.stat.gov.rs/en-US
Stojanović, D., & Stojanović, D. (2017). Monetary policy transmission mechanisms in Serbia: evidence from the fully-fledged inflation targeting regime. Post-Communist Economies, 29(1), 117-137. doi:10.1080/14631377.2016.1238083
Touny, M. A. (2013). Investigate the Long-Run Trade-Off between Inflation and Unemployment in Egypt. International Journal of Economics and Finance, 5(7), 115–125. doi:10.5539/ijef.v5n7p115