CONSEQUENCES OF ECONOMIC GROWTH SUPPORT IN SMALL OPEN ECONOMY IN A GLOBALIZED WORLD

Nowadays we live in deep integration. In global world, everything is related to everything. Any decision of monetary or fiscal policy does not stay without response. So how can be the economic growth in small open economy supported? Which instruments should be used? The article shows the possibilities of economic growth support. One of these possibilities is exchange rate intervention. It is the monetary policy instrument so called as beggar thy neighbour. It rests in export supports thanks to devaluing the domestic currency rate. Weakened domestic currency increases competitiveness of domestic goods on foreign markets. It is generally assumed, that this will increase employment and GDP. This is a great and simple solution at first glance. It can also have negative effects on the domestic economy. At the moment, when we exhaust free labor (unemployment is at a very low level), is the problem of maintaining economic growth. Low unemployment leads to the wage growth. Wages grow faster than labor productivity. New workers come from abroad. Part of their wages is absorbed by labor agencies. Therefore, there is no wage decline. And, of course, it is not all. Other problems arise in the rental market, foreigners who have left their jobs or been made redundant do not return home etc. Thus, it is important not only to look for obvious benefits but also to look at potentially hidden threats.