**5. Conclusions**

Given the strategic priority the government of Albania, Bosnia and Hercegovina, Kosovo, Montenegro, North Macedonia, and Serbia have to join the European Union, we felt compelled to identify an approach and methodology that the Governments of the WB 6 can use in developing anti-inflation macroeconomic stability and overall development strategy. Given the high increase in the interest of fulfilling the Maastricht convergence criteria before the accession and the lack of any uniform methodology, we believe that the findings presented in our paper will appeal to macroprudential policymakers. Although previous research papers have identified a few methods that could be used in forecasting growth, such as internal and external variables, the methodologies developed from those findings have been restricted and difficult to administer on a national level of the WB 6. Thus, our findings will allow the macroprudential policymakers to understand the factors involved in identifying the onset of macroeconomic efficiency dynamics and macroeconomic expectations in Western Balkan countries better and develop more effective policy measures that can be used nationally. In so doing, we hope that our research paper advances the toolset needed to combat the growth concerns of many macroprudential policymakers in the Western Balkan countries, especially the Central Banks.

This paper reveals a significantly wider knowledge gap: both theoretical and empirical. We identified recursively six SVAR models. Each model aggregates two critical macroeconomic variables to forecast GDP in the Western Balkans. We find that among the performance of the individual-predictor forecasts, all country models perform with high precision, based on the root mean square error and stochastic-static solution model simulator. This essential evidence shows that government efficiency and inflation are critical in promoting sustainable growth. The main implications of this study suggest that the government efficiency indicator is crucial in governing macroeconomic stability and sustainable growth in Western Balkans.

The impulse response findings reveal that the responses of GDP and inflation to a shock on economic governance are significant, except in the case of Albania, where the response of GDP and inflation are almost flat. Future papers are

**Figure 2.**

**228**

*Impulse responses to economic freedom and EGDI shocks. Source: Authors' calculation.*

*Linear and Non-Linear Financial Econometrics - Theory and Practice*

recommended to decompose the government efficiency to public services, civil services, independence from political pressures, policy formulations, and government commitment as individual independent variables. Meanwhile, the role of expectations are different for each of the Western Balkan countries, implying that each government has to take an in-depth analysis of different aspects of government efficiencies.

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