Linkage between external and internal imbalance – the case of Serbia

Živkov, Dejan and Njegić, Jovan and Ljumović, Isidora (2013) Linkage between external and internal imbalance – the case of Serbia. Industrija: časopis za ekonomiku industrije, 41 (4). pp. 127-142. ISSN 0350-0373

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Abstract

After a while almost all transition and emerging countries that have entered into the process of economic reforms became attractive for foreign direct investments and foreign loans. Consequently, huge amount of capital inflow lead to the surpluses in the financial-capital account. Capital that has entered the system usually converts into the local currency and thus contributes to the growth of money supply in the system. However, high level of money supply leads to internal imbalances such as relatively high inflation and unstable exchange rate. In this paper authors try to give an answer to whether above described scenario is characteristic for Serbian transition economy. In this process the paper use linear regression, vector autoregression (VAR) and error correction model.

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