Academic journal article Economics, Management and Financial Markets

Institutional Modeling on Economic Policy in Conditions of Crisis with Emphasis on the Republic of Macedonia

Academic journal article Economics, Management and Financial Markets

Institutional Modeling on Economic Policy in Conditions of Crisis with Emphasis on the Republic of Macedonia

Article excerpt

1. Introduction

The institutional environment forms the framework in which human action takes place. "Institutions reduce uncertainty by providing a structure to everyday life," writes North (1990, 3). "In the jargon of the economist, institutions define and limit the set of choices of individuals. Institutional constraints include both what individuals are prohibited from doing and, sometimes, under what conditions some individuals are permitted to undertake certain activities. ... They are perfectly analogous to the rules of the game in a competitive team sport" (North, 1990, 3-4).

Of these sets of rules, the legal environment has received the most attention. Economists have long been interested in the economic effects of laws (for instance, the effects of a price ceiling on equilibrium price and quantity), but only in the last few decades has economics been applied to the design of legal rules and the legal system itself.

Meanwhile, failures in the regulatory framework were identified as key for the build-up of the crisis and a new regulatory framework with enhanced prudential and supervision policies were therefore deemed essential. New regulation and supervision frameworks were asked for to reduce the odds of repetition of a similar crisis in the future, or to deal with its control and resolution according to well defined rules and in a coordinated manner in case of failure to prevent a crisis. In a global crisis a main challenge will be, moreover, to align solutions tailored to the various national financial systems with a global regulatory framework that prevents regulatory arbitrage.

Hence a transparent and consistent set of policies needs to be set up as quickly as possible to strengthen the capital base of banks on a durable and self-sustained basis to restore a normal functioning of the banking system. Once clear signs emerge that financial and macroeconomic recovery is solid and self-sustained, coordinated "exits" from banking support and, subsequently, fiscal stimulus and temporary support in product and labor markets

Why the basic type of innovation in a model of anti-crisis economic policy must be focused on institutional innovation? Because only they can eliminate party-lobbyist influence and market constraints, the missing trigger control state and other mechanisms, the rule of law, economic freedom and increase the efficiency of the instrument of economic policy.

In this article we will give a brief analysis of the economic policy of the EU through a consideration of the role of fiscal, structural, within which sheds light on the business support and investment as well as policies on the market in the labor force.

Also, we believe to be most important ways under Macedonian conditions on the recessive environment it is necessary to pay a special light on the economic policy however, by reviewing the measures of the Government, as the designer of the economic policies directed toward regulatory reform from the perspective of improving the business environment.

Approach to the implementation of the analysis was the current institutional arrangements and practices, which analyzed the extent to which the defined competencies, commitments, decisions really apply, what is their effect and how they should be made to the extent the effective influence to reduce the recessionary attack.

2. Macroeconomic Policies Modeling

This framework, once fully developed, would include policy instruments in the pursuit of: (i) crisis prevention, (ii) crisis control and mitigation, and (iii) crisis resolution:

At the crisis prevention stage, financial policy would deliver the appropriate regulation and supervision of financial markets so as to minimize the risk of crisis conditions building up. Monetary and fiscal policies would contribute by leaning against asset cycles, responding to a broad set of indicators of macro-financial stability such as credit growth and house prices. …

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