Application of the IS-MP-IA Model and the Taylor Rule to Croatia

Application of the IS-MP-IA Model and the Taylor Rule to Croatia: Policy Implications for Economic Integration

Applying the IS-MP-IA model and the Taylor rule, this study finds that a lower expected inflation rate, real appreciation, a lower federal funds rate, and more world output would help increase the Croatian output. The insignificance of government deficit spending suggests that the Ricardian-equivalence hypothesis may be applicable to Croatia. The conventional wisdom to pursue currency devaluation to stimulate the economy may not work for Croatia.

Ⅰ. Introduction

Ⅱ. Theoretical Model

Ⅲ. Empirical Results

Ⅳ. Summary and Conclusions

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