MALA OTVORENA EKONOMIJA I INSTRUMENTI EKONOMSKIH POLITIKA
SMALL OPEN ECONOMY AND INSTRUMENTS OF ECONOMIC POLICIES

Author(s): Marko Markić, Brano Markić
Subject(s): National Economy, Economic policy, Fiscal Politics / Budgeting
Published by: Finrar d.o.o Banja Luka
Keywords: openness of the economy; regression; fiscal policy; monetary policy;
Summary/Abstract: A small open economy has two key features. First, it has no influence on global economic trends: supply, demand, prices, and exchange rates. It is exposed to exogenous influences of financial and trade flows. Second, open means that imports and exports are constantly growing in relation to the gross national product. There are no economic barriers to import and export. The measurement of the economic openness of a national economy has varied in recent decades. Theoretically and observed, there is no unequivocal solution on how to best measure the degree of economic openness. The assumption is that domestic production grows over time in a small open economy. Domestic goods become cheaper because supply increases, and then foreign demand increases. The increase in imports depends on the increase in domestic demand. It is logical to assume that higher demand for all goods, including foreign ones, increases imports. Likewise, an increase in the real exchange rate means a higher price of foreign goods compared to domestic ones, and imports fall. The paper analyzes the economy of Bosnia and Herzegovina, its openness and the influence of public revenues, public expenditures, monetary mass, inflation, interest rates on the openness of the economy. Regression analysis connects the openness of the economy (independent variable) with public revenues and expenditures (fiscal policy), inflation, interest rate and money supply (monetary policy). The paper develops a regression model based on the impact of fiscal and monetary policy on the openness of a small economy is analyzed.

• Details
• Contents