Effects of Fiscal, Monetary, and Exchange rate policies on Output in 12 the Selected Asian Economies, 1974-2007

Abstract

Since the 1960s, the relative importance of monetary and fiscal policy in economic stabilization has been a matter of debate among monetarists and fiscalists. According to the monetarists' view, monetary policy has had a more significant role than fiscal policy. On the other hand, the Keynesians School believes that fiscal policy is more powerful than monetary policy. So far, there have been a good number of empirical studies on the action of fiscal and monetary policy in developed and underdeveloped economies. Most of these studies emphasised different variables and different estimation procedures for analysing the effects of the two types of policy on output using a single equation. However, the findings have been equivocal. This study investigates panel data analysis to examine the effects of fiscal, monetary, Exchange rate policies on output in twelve selected Asian countries over the period 1974-2007. In order to test the relative strength of these two policies on output, the panel VAR technique utilized. The study reveals that the fiscal policy has a more powerful effect on output than the monetary policy in the case of these Asian economies.