Graduate Institute of International and Development Studies Working Paper 01-2016
In this paper, we study the role of institutional quality in the cyclicality of macroeconomic policies of transition economies. Using annual data over 1996-2013, we find that the quality of institutions play a significant role in their ability to carry out counter-cyclical macroeconomic policy. This paper also analyzes the effects of monetary and fiscal shocks on output. Dividing the countries into two groups, namely CIS and non-CIS, we find that median impulse response of CIS countries´ GDP to monetary shock is negative, while in non-CIS countries this effect is close to zero. However, we find negative effect of fiscal shock on CIS countries´ GDP while the median effect of fiscal shock on GDP is very close to zero in non-CIS countries.