Title:
Implications of Monetary and Fiscal Policy Shocks: Evidence from an Eastern European Economy

Authors:
*Alin Ioan VID, Alexandra CHEPTIȘ, Miruna VASILCA, Cristina BEJENARU, Romania

Abstract:

This study examines the impact of monetary and fiscal policy shocks on Romania, a former communist economy transitioning toward a functional market system. The research employs a structural vector auto regression (SVAR) model that integrates both fiscal and monetary policy variables, extending previous models by incorporating the short-term interbank interest rate as a key monetary policy indicator. The findings indicate that monetary policy plays a crucial role in controlling inflation in the medium term, while fiscal policy shocks - represented by government expenditure and revenue changes - exert marginal effects on macroeconomic indicators. Additionally, fiscal policy decisions influence monetary policy responses, prompting immediate central bank actions. These insights are particularly relevant in the current economic landscape, marked by geopolitical instability and inflationary pressures. The study contributes to the ongoing discourse on policy coordination in emerging economies, emphasizing the necessity of a balanced policy mix for macroeconomic stability.

DOI: https://doi.org/10.51505/IJEBMR.2025.9206