engleski

PRICE-SPECIE-FLOW MECHANISAM: THE CASE OF CROATIA

The aim of this paper is to explore how well does the theorethical model of the automatic adjustment of internal (prices) and external (foreign debt) balances fit Croatian reality. In other words, this paper studies the tendency of the Croatian economy to converge to a stable external and internal balance. The first part of the paper is analysing impulse functions derived from the unrestricted VAR model, whereby estimated Jacob matrix denotes coefficients by the prices and external debt. It is important to note that necessary and sufficient conditions for local asymptotic stability of stationary state implies that the trace and determinant of the Jacob matrix exceeds zero and is bellow zero respectively. The estimated model shows probable divergence of prices and external debt from stationary equilibrium. The second part of the paper brings the constraints and suggests possible ways to get 'better' estimator.

inflation; foreign debt; internal and external stable state; unrestricted VAR

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