In?ation, Employment and FDI in Bosnia and Herzegovina
Keywords:currency board, BIH, inﬂation, unemployment, FDI, monetary policy, Phillips curve
The monetary policy of Bosnia and Herzegovina (hereinafter referred to as BIH) operates under the currency board system, responsible for strengthening the market economy and price stability. On the other hand, the economy of BIH is facing long term unemployment, unfavorable business environment and feeble competitive position. Tis discourages economic development. Further retaining the currency board system in BIH attracts great interest. The paper analyzes the relation among in?ation, unemployment and foreign direct investment (FDI). Statistical analysis (coefficient of correlation and simple linear regression (period 2004/2014)) indicates that there is no inversion similar to the Phillips curve between in?ation and unemployment. Tus, it is implied that BIH renounces employment, aggregate demand and economic growth for the sake of stable prices. Moreover, the ratio of in?ation and participation of FDI in GDP is inverse with a negligible correlation. Analyses demonstrate that there is no optimal combination of in?ation and unemployment in BIH that would improve business environment and stimulate FDI and aggregate demand. Correlation and regression analyses fail to provide the arguments to statistically challenge the currency board as the monetary system model of BIH.
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