VAR — Analysis of Global Financial Economic Crisis Impact on Public Budget and Unemployment: Evidence from the Economy of the Kyrgyz Republic
VAR — Analysis of Global Financial Economic Crisis Impact on Public Budget and Unemployment: Evidence from the Economy of the Kyrgyz Republic

Summary/Abstract: The Global financial crisis hit the economy of the Kyrgyz Republic by the third wave of its transmissionin the early of 2009. The article examines the impact of the Global financial economic crisis on the publicbudget and unemployment of the Kyrgyz Republic. We analyzed the transmission of the crisis on the publicbudget firstly and its effect on unemployment level by using the vector autoregression approach (VAR) andquarterly data for 2005–2013 within the framework of IS-LM model for small open economies with floatingexchange rate. There is an inverse relationship between the public budget and remittances inflow, liquiditylevel, volume of deposits, and exchange rate. As a result of the study, the fall in remittances inflows, liquiditylevel of the banking system, depreciation of the national currency lead to an increase in public revenue.Therefore, the increase in public spending during the crisis period, with the aim of unemployment reduction,may be considered as a crucial policy. The study result allows to policy-makers to exactly know what channelsof transmission mechanism transfer the Global crisis on the public budget and its effect on unemploymentlevel of the republic in order to undertake anticrisis macroeconomic policy. The final result of the studyindicates that the increase of unemployment level by 1 % requires the increase of public spending by 0.63 %.

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