IS REAL DEPRECIATION AND MORE GOVERNMENT SPENDING EXPANSIONARY? THE CASE OF MONTENEGRO

Employing an extended IS-MP-AS model to study the effects of the exchange rate, fiscal policy and other related variables in Montenegro, the paper finds that real depreciation of the Euro, a lower government spending-to-GDP ratio, a lower real lending rate in the Euro area, a lower lagged real oil price, a higher lagged real GDP in Germany, and a lower expected inflation rate would promote economic growth.