Published: 01.01.2013


2005/5 Cyclically Adjusted Balance of Latvia's General Government Consolidated Budget
( 1,49 MB)
Sigita Grundiza, Dainis Stikuts, Olegs Tkacevs

This study estimates cyclically adjusted balances of Latvia's general government consolidated budget using methodologies of the ESCB and OECD and assesses the consistency of the implemented fiscal policy with the EU fiscal policy framework. During the period of rapid economic growth the Latvian government pursued fiscal expansion instead of ensuring budgetary consolidation in cyclically adjusted terms. Fiscal policy of the Latvian government has been inconsistent with the requirements of the Stability and Growth Pact and has exerted an additional pressure on consumer prices and the current account.

Key words: cyclically adjusted budget balance, Stability and Growth Pact, pro-cyclical fiscal policy, budgetary elasticity

JEL classification codes: E62, H62
2005/4 Short-Term Forecasting of Economic Development in Latvia Using Business and Consumer Survey Data ( 2,56 MB)
Aleksejs Melihovs, Svetlana Rusakova

At any stage of an economic cycle, policy makers and production managers are to make decisions how to benefit from an economic upswing most, or how to mitigate the adverse effects of an economic downturn. An early evaluation of economic development trends in a country will lead to a more favourable translation of policy decisions into economic processes at both microeconomic and macroeconomic levels. An assessment of economic business cycles often involves business and consumer survey results as evidenced, for instance, by rich practices of the EU and other world countries. This paper examines the usefulness of indicators from business and consumer surveys in the short-term forecasting of Latvia's economic development.

Key words: business and consumer surveys, economic development, short-term forecasting

JEL classification codes: C22, C53, E32
2005/3 Assessment of Labour Market Elasticity in Latvia ( 3,87 MB)
Anna Zasova, Aleksejs Melihovs

Latvia's accession to the EU and its resolute policy oriented toward a full-fledged participation in the EMU, have highlighted the need for a profound investigation into the country's labour market. A flexible labour market is a key policy instrument for a country in the single currency area to ensure an escape from the adverse effects of asymmetric shocks. Labour market flexibility will determine how efficiently the economy of Latvia will develop in the period following its accession to the EU. The paper deals with flexibility of Latvia's labour market using the dynamics of market indicators and assessing its institutional framework.

Key words: labour market flexibility, flexibility of wages, institutional framework

JEL classification codes: C22, E24, J20, J50, R23
2005/2 Modelling Long-Term Competitiveness of Latvia ( 1,97 MB)
Gundars Davidsons

The paper aims to measure competitiveness of exports and, hence, also competitiveness of Latvia as a state using foreign trade data. To find out whether Latvia's export capacity and the potential of competitiveness have improved after the country regained independence, a particular focus is on the respective recent dynamics. The theoretical model presented in the paper is a version of the assessment of current export dynamics. The model treats processes of the last decade as a more profound specialisation. Latvia is producing almost the same output as in the early-1990s, without much extra value added embedded in it. The EU accession undeniably boosts the export market share providing competitive advantages vis-à-vis other low-cost economies. Nonetheless, even in the presence of a positive short-term effect, it may adversely affect human capital over longer horizons. This implies that on behalf of the state a more active involvement in the build-up of industrial basis is desirable.

Key words: competitiveness, comparative advantage, real convergence

JEL classification codes: F14, F19, O33, O47
2005/1 Repegging of the Lats to the Euro: Implications for the Financial Sector ( 2,36 MB)
Viktors Ajevskis, Armands Pogulis

The paper is a generalisation of L. E. O. Svensson's simplest test of target zone credibility and the drift-adjustment method in the context of anticipated planned repegging. In 1994, the Latvian lats was pegged to the SDR basket of currencies but on 30 December 2004 the lats was pegged to the euro maintaining the existing exchange rate and fluctuation band of ±1% around the peg rate. Three currencies and two time intervals have been used leading to the generalisation of uncovered interest parity and necessitating the use of forward interest rates.

Key words: planned repegging, exchange rate target zone, credibility, market interest rate, arbitrage opportunities

JEL classification codes: D84, E43, E58, F31, G15