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Empirical econometric analysis of relationship between fiscal- monetary policies and output on Saarc countries

Author

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  • Mohammed Nur Hussain

    (Swinburne University of Technology - Sarawak, Malaysia
    University of Chittagong, Bangladesh)

Abstract

The seminal 1968 paper of Anderson and Jordan on the relative effectiveness of monetary and fiscal policy on output stabilization caused many debates among both economists and policy makers. This paper uses a standard unrestricted VAR (vector autoregression) model to analyze the above relationship for five SAARC (South Asian Association of Regional Cooperation) countries (Bangladesh, India, Nepal, Pakistan and Sri Lanka) over the period of 1974-2007. In a system of five-equation of VAR model, this paper reveals that money supply, government expenditure, the real exchange rate and the foreign interest rate are co-integrated for all countries. The results of both the VD (Variance decomposition) and the IRFs (Impulse response functions) indicate that monetary policy has been more effective on output than fiscal policy in the case of Pakistan and Sri Lanka, whereas fiscal policy has had a more powerful effect than monetary policy on Bangladesh, India and Nepal.

Suggested Citation

  • Mohammed Nur Hussain, 2014. "Empirical econometric analysis of relationship between fiscal- monetary policies and output on Saarc countries," Journal of Developing Areas, Tennessee State University, College of Business, vol. 48(4), pages 209-224, October-D.
    • Handle: RePEc:jda:journl:vol.48:year:2014:issue4:pp:209-224
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    Citations

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    Cited by:

    1. Israa A. El Husseiny, 2023. "The relative effectiveness of fiscal and monetary policies in promoting Egypt’s output growth: an empirical investigation using an ARDL approach," Journal of Economic Structures, Springer;Pan-Pacific Association of Input-Output Studies (PAPAIOS), vol. 12(1), pages 1-23, December.
    2. Şen, Hüseyin & Kaya, Ayşe, 2015. "The relative effectiveness of Monetary and Fiscal Policies on growth: what does long-run SVAR model tell us?," MPRA Paper 65903, University Library of Munich, Germany, revised 01 Aug 2015.

    More about this item

    Keywords

    Monetary Policy; Fiscal Policy; VAR;
    All these keywords.

    JEL classification:

    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy; Modern Monetary Theory
    • C53 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Forecasting and Prediction Models; Simulation Methods

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