Abstract
The existence of nonlinear effect of monetary and fiscal policies on economic performance have intensively discussed and debated among policy makers. In particular, the main objective of this paper is to investigate the performance of monetary versus fiscal policies on GDP growth. The study is based on time series data for the period of 1981Q1-2018Q1. The results reveal that GDP lag two term is a transition parameter of AR(1) and has significance effect on economic growth. Comparing policies, monetary policy where real effective exchange rate is able to stimulate higher growth but the fiscal policy through government spending, government debt and current imbalances fail to lead to higher GDP growth. Overall, we can conclude that monetary policy through exchange rate is more effective to promote growth compared to fiscal policy.
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