The relative effectiveness of Monetary and Fiscal Policies on growth: what does long-run SVAR model tell us?

Şen, Hüseyin and Kaya, Ayşe (2015): The relative effectiveness of Monetary and Fiscal Policies on growth: what does long-run SVAR model tell us?

Abstract

This paper studies empirically the relative effectiveness of monetary and fiscal policies on growth. Unlike many previous papers which have focused, to a large extent, on the effect of monetary or fiscal policies separately, this paper considers the comparative efficacy of the two policies on growth by applying the Structural Vector Autoregression (SVAR) model to the quarterly data for Turkey over the period 2001:Q1-2014:Q2. The empirical findings of this paper show that both monetary and fiscal policies do have significant effects on growth. However, monetary policy is more effective than fiscal policy in stimulating growth. More specifically, interest rate ―a monetary policy variable― is the most potent instrument in affecting growth. Then budget deficit ―a fiscal policy variable― becomes the second important variable after interest rate. These findings suggest that although the relative effectiveness in boosting growth is different, both policies significantly affect growth, suggesting that they should be used jointly but in an efficient manner.

• Item Type: MPRA Paper
• Language: English
• Keywords: Monetary Policy, Fiscal Policy, Growth, Macroeconomic Policy Management, SVAR, Turkey.
• Subjects: E - Macroeconomics and Monetary Economics > E5 - Monetary Policy, Central Banking, and the Supply of Money and Credit > E52 - Monetary Policy; E - Macroeconomics and Monetary Economics > E5 - Monetary Policy, Central Banking, and the Supply of Money and Credit > E58 - Central Banks and Their Policies; E - Macroeconomics and Monetary Economics > E6 - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook > E62 - Fiscal Policy; E - Macroeconomics and Monetary Economics > E6 - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook > E63 - Comparative or Joint Analysis of Fiscal and Monetary Policy ; Stabilization ; Treasury Policy

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