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

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  • Şen, Hüseyin
  • Kaya, Ayşe

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.

Suggested Citation

  • 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.
    • Handle: RePEc:pra:mprapa:65903
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    References listed on IDEAS

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    Cited by:

    1. Ekundayo P. Mesagan & Ismaila A. Yusuf, 2019. "Economic Stabilisation and Performance in West Africa: The Role of Fiscal and Monetary Policy," Working Papers of the African Governance and Development Institute. 19/097, African Governance and Development Institute..
    2. Titus Ayobami Ojeyinka & Dauda Olalekan Yinusa, 2023. "External Shocks and Their Transmission Channels in Nigeria: A Dynamic Stochastic General Equilibrium Approach," Global Journal of Emerging Market Economies, Emerging Markets Forum, vol. 15(1), pages 132-153, January.
    3. Okunoye, Ismaila & Hammed, Sabuur, 2020. "Oil Price Shock and Fiscal-Monetary Policy Variables in Nigeria: A Structural VAR Approach," MPRA Paper 104145, University Library of Munich, Germany, revised 15 Sep 2020.
    4. Mehmet BÖLÜKBAÞ, 2016. "The Effects of Economic Policies in Turkey: An Application for the Period After 2000," Journal of Social and Administrative Sciences, KSP Journals, vol. 3(4), pages 315-322, December.
    5. Abu Bakarr Tarawalie & Noah Kargbo, 2020. "Efficacy of Fiscal and Monetary Policy in Sierra Leone: An ARDL Bound Testing Approach," International Journal of Economics and Financial Issues, Econjournals, vol. 10(3), pages 217-224.
    6. Tekilu Tadesse & Tesfaye Melaku, 2019. "Analysis Of The Relative Impact Of Monetary And Fiscal Policies On Economic Growth In Ethiopia, Using Ardl Approach To Co-Integration: Which Policy Is More Potent?," Copernican Journal of Finance & Accounting, Uniwersytet Mikolaja Kopernika, vol. 8(2), pages 87-115.

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    More about this item

    Keywords

    Monetary Policy; Fiscal Policy; Growth; Macroeconomic Policy Management; SVAR; Turkey.;
    All these keywords.

    JEL classification:

    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy; Modern Monetary Theory
    • E63 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Comparative or Joint Analysis of Fiscal and Monetary Policy; Stabilization; Treasury Policy

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