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Conduct of Monetary and Fiscal Policy

Conduct of Monetary and Fiscal Policy

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Conduct of Monetary and Fiscal Policy

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  1. The Puzzles of Central and Eastern EuropeTransformation and Integration ECES, Prague Conduct of Monetary and Fiscal Policy Jaromír Šindel ECES

  2. The Puzzles of Central and Eastern EuropeTransformation and Integration ECES, Prague Topics • Fiscal Policy during transformation • New role of government in society • New fiscal, tax system • Political cycle • Monetary Policy during transformation • New monetary system • Case studies: Czech republic, Poland and Hungary • Monetary and exchange rate based stabilization programmes (next lecture) • Financial and banking crisis (question of capital mobility, next lecture)

  3. The Puzzles of Central and Eastern EuropeTransformation and Integration ECES, Prague Fiscal Policy during transformation • New role of government in society • Lower subsidies • From vertical to horizontal relationships in economy • What does goevernment do? Collecting taxes and paying transfers (natural or in money).

  4. The Puzzles of Central and Eastern EuropeTransformation and Integration ECES, Prague New tax system: VAT example Lots of changes? http://europa.eu.int/comm/taxation_customs/resources/documents/taxation/vat/how_vat_works/rates/vat_rates_2005_en.pdf

  5. The Puzzles of Central and Eastern EuropeTransformation and Integration ECES, Prague New tax system: VAT example http://europa.eu.int/comm/taxation_customs/resources/documents/taxation/vat/how_vat_works/rates/vat_rates_2005_en.pdf

  6. The Puzzles of Central and Eastern EuropeTransformation and Integration ECES, Prague New tax system: VAT example http://europa.eu.int/comm/taxation_customs/resources/documents/taxation/vat/how_vat_works/rates/vat_rates_2005_en.pdf

  7. The Puzzles of Central and Eastern EuropeTransformation and Integration ECES, Prague Czech Republic - deficit Source: IFS

  8. The Puzzles of Central and Eastern EuropeTransformation and Integration ECES, Prague Czech Republic – government taxes and expenditures Consolidated tax burden (% GDP) Gov. Expenditures without net borrowing and subsidies to transformation institutions (% GDP) Source: MF ČR

  9. The Puzzles of Central and Eastern EuropeTransformation and Integration ECES, Prague Czech Republic – gov. balance (% GDP) With net borrowing Without net borrowing and subsidies to transformation institutions Source: MF ČR

  10. The Puzzles of Central and Eastern EuropeTransformation and Integration ECES, Prague Czech R. – consolidated gov. debt Mld. CZK In % of GDP Source: MF ČR

  11. The Puzzles of Central and Eastern EuropeTransformation and Integration ECES, Prague Fiscal Policy during transformation • Political cycle • The collected works of James Buchanan • http://www.econlib.org/library/Buchanan/buchCContents.html

  12. The Puzzles of Central and Eastern EuropeTransformation and Integration ECES, Prague Monetary Policy during transformation • New monetary system • From 1 level banking system to 2 level (central and commercial banks) • State Bank of Czechoslovakia • The change of banking system was prepared before transformantion • Case studies: Czech republic, Poland and Hungary • Different approaches to the monetary policy but with the same problems

  13. The Puzzles of Central and Eastern EuropeTransformation and Integration ECES, Prague Monetary Policy Strategy in Czech rep. Targeting of M2 growth (M2 = domestic and foreign monetary assets) Source: CNB Why modified targets? Because of the inflow of the foreign capital

  14. The Puzzles of Central and Eastern EuropeTransformation and Integration ECES, Prague Monetary Policy Strategy in Czech rep. Targets for net inflation(inflation without regulated prices and impact of indirect or subsidies) Source: CNB … but changes …

  15. The Puzzles of Central and Eastern EuropeTransformation and Integration ECES, Prague Monetary Policy Strategy in Czech rep. Inflation target(consumer price index) Source: CNB … and changes … inflation target from 2006 till Euro adoption 3 %(alowed 1 p.p.)

  16. The Puzzles of Central and Eastern EuropeTransformation and Integration ECES, Prague Monetary Policy Strategy in Czech rep. History of inflation targets in Czech republic in picture Source: CNB

  17. The Puzzles of Central and Eastern EuropeTransformation and Integration ECES, Prague Monetary Policy Strategy in Poland Source: Horská, H.: Inflation Targeting in the Central Eastern European Countries. 2004. www.horska.com

  18. The Puzzles of Central and Eastern EuropeTransformation and Integration ECES, Prague Monetary Policy Strategy in Poland Inflation targets in Poland Source: Horská, H.: Inflation Targeting in the Central Eastern European Countries. 2004. www.horska.com

  19. The Puzzles of Central and Eastern EuropeTransformation and Integration ECES, Prague Monetary Policy Strategy in Poland Inflation vs. TargetsFiscal deficits and Wages Source: Horská, H.: Inflation Targeting in the Central Eastern European Countries. 2004. www.horska.com

  20. The Puzzles of Central and Eastern EuropeTransformation and Integration ECES, Prague Monetary Policy Strategy in Poland Exchange rate (PLN) and Real Interest RatesMonetary Conditions Index Source: Horská, H.: Inflation Targeting in the Central Eastern European Countries. 2004. www.horska.com

  21. The Puzzles of Central and Eastern EuropeTransformation and Integration ECES, Prague Monetary Policy Strategy in Hungary Source: Horská, H.: Inflation Targeting in the Central Eastern European Countries. 2004. www.horska.com

  22. The Puzzles of Central and Eastern EuropeTransformation and Integration ECES, Prague Monetary Policy Strategy in Hungary Inflation targets in Hungary Source: Horská, H.: Inflation Targeting in the Central Eastern European Countries. 2004. www.horska.com

  23. The Puzzles of Central and Eastern EuropeTransformation and Integration ECES, Prague Monetary Policy Strategy in Hungary Inflation vs. TargetsFood Price Indexes Source: Horská, H.: Inflation Targeting in the Central Eastern European Countries. 2004. www.horska.com

  24. The Puzzles of Central and Eastern EuropeTransformation and Integration ECES, Prague Monetary Policy Strategy in Hungary Fiscal deficits and WagesExchange rate(HUF)and Interest Rate(3 month) Source: Horská, H.: Inflation Targeting in the Central Eastern European Countries. 2004. www.horska.com

  25. The Puzzles of Central and Eastern EuropeTransformation and Integration ECES, Prague Lessons for future. • Make a project for price liberalization at Cuba and China. • Goals, solutions, reasons.