Post‐pandemic economic recovery: A review of the effectiveness of fiscal and monetary policies in India

This paper introduces the population structure, the fiscal expenditure structure and the monetary policy into the new Keynesian dynamic stochastic general equilibrium framework, focusing on the analysis of the impact of population aging on China’s macro-economic control policies. The results of the study show that: In addition to the negative impact of the aging population itself on economic growth, the space for maneuvers left for macro-control policies has become increasingly limited, affecting the effectiveness of policy control and increasing the cost of policy implementation. First, with the aging population structure, the positive effects of macroeconomic control policies have been weakened and the negative effects have been strengthened. This shows that population aging has undoubtedly weakened the effectiveness of fiscal and monetary policies. In terms of macroeconomics, the basic effect of population aging is that it will profoundly change the relationship between the national income distribution pattern and the allocation of economic resources. In the long run, population aging reduces labor supply, and the overall economic life cycle gap widens the lack of economic growth and the overall welfare level of society continues to decline. In the short term, accelerating the burden of financial pensions has significantly reduced the space for fiscal policy maneuvers and also weakened the ability of the government to implement anti-cyclical fiscal policies. In terms of policy assessment, the decline in fiscal multipliers has masked the enthusiasm of the financial sector, amplifying its crowding-out effect and impairing the quality of financial performance. In terms of the monetary policy, population aging may bring deflationary pressures, limit the monetary policy’s ability to stimulate aggregate demands, force the Central Bank to adopt more radical measures to achieve the same effect, and be directly exposed to higher macro-economic risk exposures and strengthen financial fragility. Second, in the elderly-dominated society, the central bank’s tolerance for inflation rate has decreased, and interest rate adjustments are more likely to approach the lower limit. Once these new weighing factors are superimposed on the cycle, they will further complicate the operation of the monetary policy. The Central Bank must not only prevent the spread of inflation, protect the economic interests of the elderly, but also prevent the hard landing” economic risks caused by excessive tightening. Objectively, the frequency of policy switching will exceed the previous level, and unconventional monetary policies will probably become the norm. In terms of stabilizing the economy and finance, the lack of effective demand caused by population aging has weakened the effectiveness of traditional monetary policy operations. Severe aging may further trigger liquidity traps and no longer be affected by loose monetary policies. Low interest rates are stimulating investment and consumption. The role is limited. Enterprises no longer pursue profit maximization but minimize debt. As a result, the demand for bank credit is insufficient and the liquidity of the central bank is difficult to release. Under such circumstances, structural reform will become a necessary supplement to the monetary policy. Third, increasing the proportion of working population and maximizing the negative effects of accelerating population aging can greatly improve and increase the effectiveness of fiscal and monetary policies. The loose population policy does not necessarily change the demographic structure and promote economic growth in the short term. The economic problems brought about by population aging are a rather complicated social project. It is not simply a matter of opening up policies and stimulating fertility” that can open the door to alleviate the aging population. Moreover, increasing the labor participation rate will increase the proportion of the working population to a certain extent, effectively increase the supply of labor force, and reduce the tax burden on each of the young people. More importantly, increasing the labor participation rate can effectively increase the labor supply, not only helping to ease the burden of government pensions and guaranteeing the reliability of the pension system in the medium term, but also helping to reduce macroeconomic fluctuations, expand fiscal and monetary policies to create more space for operations, stimulate private consumption and investment, and drive economic growth.

This study aims to provide a comprehensive analysis of the fiscal and monetary policies enacted by the G7 countries in the post-COVID-19 era, and to investigate their impact on economic recovery. This research is set amid the global disruption during the COVID-19 pandemic, which compelled governments around the world to enact unprecedented measures to stimulate economic activity and prevent financial collapse. The objective of our research analysis is to assess the efficacy of these policies in promoting economic recovery while considering the diverse strategies adopted across the G7 nations. The primary research content revolves around a comparative evaluation of monetary strategies—such as interest rate cuts and quantitative easing—and fiscal measures—such as direct payments, loan guarantees, and tax deferments. This study primarily relies on data sourced from major global agencies and central banks, which serve to quantify the effects of these policies on key economic indicators, such as GDP growth, employment rates, and inflation. The study also takes into account recent forecasts from the IMF and OECD, offering a nuanced view of the prospects for economic recovery among the G7 countries. This analysis can be useful in providing a deeper understanding of the complexities involved in policymaking at a macroeconomic level. The analysis identifies notable disparities in the economic recovery rates across G7 countries, which can be attributed to the variations in the scale, scope, and nature of their fiscal and monetary interventions. Consequently, the study offers valuable insights into the requisite policy calibrations necessary for more targeted and effective economic stimulation.

This paper investigates the dynamic interplay between monetary and fiscal policies and their influence on herding behavior among manufacturing companies in China. Herding behavior, characterized by the tendency of firms to mimic the actions of others rather than making independent decisions, can significantly affect market stability and efficiency. The study employs a comprehensive dataset spanning a period that encompasses various monetary and fiscal policy interventions, alongside fluctuations in market conditions. Using advanced econometric techniques, including Vector Autoregression (VAR) models and Granger causality tests, we analyze the short-term and long-term effects of monetary and fiscal policies on herding behavior within the manufacturing sector. The study also examines the moderating role of firm-specific characteristics such as size, industry, and financial health on the relationship between policies and herding behavior. Preliminary findings suggest a complex and dynamic relationship between policy interventions and herding behavior. Monetary policy tools, such as interest rate adjustments and open market operations, exhibit significant short-term effects on herding behavior, influencing firms' decisions to follow prevailing market trends. Similarly, fiscal policy measures, including tax incentives and government spending, demonstrate varying degrees of impact on herding behavior, contingent upon the economic context and firms' financial positions. Furthermore, the study explores the transmission channels through which monetary and fiscal policies influence herding behavior, including their effects on market liquidity, risk perceptions, and investor sentiment. Understanding these mechanisms is crucial for policymakers and market participants to anticipate and mitigate the adverse effects of herd behavior on market stability and efficiency. In conclusion, this empirical study contributes to the existing literature by providing insights into the dynamic relationship between monetary and fiscal policies and herding behavior among manufacturing companies in China. The findings have important implications for policymakers aiming to design effective policy interventions to foster a more resilient and stable market environment, ultimately promoting sustainable economic growth and development.

There has been controversy about the appropriate responses of monetary and fiscal policies to sudden stops of capital inflows. There have been concerns that expansionary policies could undermine confidence leading to currency depreciation and a worsening of the crisis. Previous literature has generally found favorable effects from fiscal expansion and mixed results for monetary policy. We revisit this issue using more recent data and alternative measures of monetary policy. We find considerable support for the view that expansionary monetary policy reduces output costs of sudden stops and no significant evidence that the costs are increased. We find that fiscal expansion by countries with low levels of debt is expansionary, but that these effects can become negative at high levels of debt.

ABSTRACT: The purpose of the study is to analyze the relative efficacy of monetary and fiscal policies in fostering economic growth in Bangladesh concerning predictability, speed, and magnitude. Moreover, it aims to find the relationship between the economic boom of Bangladesh and two measures of macroeconomic management i.e., monetary and fiscal policy. The ARDL model and bound test are applied to examine the long-term link between monetary policy, fiscal policy, and economic growth. Data is obtained from the World Development Indicator (WDI) for Bangladesh for the period 1974 to 2022. Several diagnostics tests like CUSUM and CUSUMQ are used to identify both the strengths and weaknesses of the models. The findings demonstrated a long-term correlation between the two policies and economic growth. According to the calculated short-run coefficients, the short-term effect of fiscal policy is mentionable but the effect of monetary policy is negligible in the short term. But over time, the immediate effects become noteworthy. The long-term outcomes indicated that both fiscal and monetary policies have a favorable and substantial long-term impact on economic growth. The result shows fiscal policy is more effective compared to monetary policy for making Bangladesh, a role model of Bangladesh. Furthermore, all the diagnostics tests showed the stability of the estimated ARDL model. Expansionary fiscal and monetary policies lead to higher government spending and an increase in the money supply, which raises GDP levels. Conversely, if government spending and the money supply decline (contractionary fiscal and monetary policies), the GDP level falls. As a result, this study suggests using expansionary policies to boost Bangladesh’s economy.

There is a body of research that focuses on the examination of long-run relations between energy–environment–economic growth, and there is also a new type of recent research that focuses on the effects of monetary and fiscal economic policies on the environment. There is a research gap that exists due to omitting the effects of technology and energy policies, and this paper addresses this gap, in addition to merging both fields mentioned above, by including the asymmetric effects of fiscal and monetary policies. To explore the relations between fossil fuel and renewable energies, environmental pollution, and economic growth, in addition to including the roles of energy, technology, monetary, and fiscal policies, this paper employs novel NBARDL and NBARDL Granger Causality methods for yearly data assessments in the USA. The empirical findings of the paper point to the asymmetric impacts of monetary and fiscal policies in the short- and long-run. Interestingly, both contractionary and expansionary fiscal policies lead to higher CO2 emissions. Contractionary monetary policies exert a downward pressure on CO2 emissions, and if expansionary, the monetary policy causes environmental degradation. As an important policy, the energy policy emerges as a potent tool for reducing carbon emissions through not only renewable energy, but as a greater impact through energy efficiency and technology. Therefore, this paper highlights the importance of technology policies exhibiting varying relationships with environmental pollution, featuring unidirectional or bidirectional causality patterns. Renewable energy, energy efficiency combined with adequate technology, and energy policies are determined to have pivotal roles in CO2 emissions outcomes. Such policies should focus on cleaner energy sources accompanied by energy efficiency technologies in the USA to curtail environmental impacts; technology policies are vital in fostering innovations and encouraging cleaner technologies. The policy recommendations include an effective combination of monetary, fiscal, technology, and energy policies, backed by a strong commitment to achieving energy efficiency and renewable energy to mitigate environmental pollution and to contribute to sustainable development.

The purpose of the study is to explain the effects of monetary and fiscal policies on economic growth in Iraq. The dependent variable is the economic growth rate, and independent ones are exchange rate, inflation, M2 as a monetary instrument, while public debt, public expenditure, and government revenue are as fiscal instruments. The data were obtained from the Central Bank of Iraq and covers the period of 2005-2019. ARDL Bound Test and OLS were used to estimate the effects of monetary and fiscal policies on growth respectively. As for monetary policy, the results revealed that the exchange rate harms economic growth, while inflation and money supply positively affect economic growth. In terms of fiscal policy, the effects of government debt and government spending on growth seemed to be negative, while government revenues seemed to be positive

The effect of fiscal and monetary stabilization policies has been exten¬sively discussed, notably by Mundell [4,5] and Fleming [1]. Mundell discussed the problem under the special assumption of a perfect interest-elastic mobility of international capital flows, but Fleming assumed a less than perfect capital mobility. Mundell contends that "fiscal policy completely loses its force as a domestic stabilizer when the exchange rate is allowed to fluctuate," while monetary policy will have appreciable effects on employment and output. Under fixed exchange rates, on the other hand, monetary policy is shown by Mundell to be ineffective while any positive effects of fiscal policy would be conditional upon the country being able to sustain large trade deficits by either borrowing abroad or running down its accumulated international reserves. Fleming also demonstrates that the expansionary effects of monetary policy will be greater under floating exchange rates than under fixed rates and that it is uncertain whether the effects of fiscal policy will be less or more expansionary under floating rates than under fixed rates. In all but extreme cases, monetary policy is shown to exert a more expansionary influence under floating rates.

Stock market response to monetary and fiscal policy shocks: Multi-country evidence

The relative effectiveness of fiscal and monetary policies in promoting economic growth is not sufficiently examined at the empirical level for developing countries, including Egypt in particular. Hence, this paper is the first attempt to empirically examine the relative effectiveness of fiscal and monetary policies in promoting Egypt’s output growth utilizing a time-series data set over the time-period (1960–2019). The study employs the Autoregressive Distributed Lag (ARDL) Bounds testing approach to cointegration to investigate the long run and short run effects of fiscal and monetary policies on Egypt’s output growth under a modified version of the St. Louis equation model. The study finds that both monetary and fiscal policies have a positive impact on the economic activity in the long run. However, while monetary policy seems to be more effective than fiscal policy in stimulating the growth rate of nominal GDP, fiscal policy tends to have a larger, more predictable and faster impact than monetary policy on the real economic activity. Accordingly, Egypt’s policymakers are advised to follow the Keynesian’s prescription in terms of increasing the reliance on fiscal policy compared to monetary policy to achieve macroeconomic stability in both the short run and long run.

Research background: Effects of monetary and fiscal policy on output growth has been one of the major topics that economists have been investigating. Monetary and fiscal policies are tools for economists and policymakers to correctly direct the economy and facilitate the growth and development of the country. Accordingly, it is critically important for policy-makers in the area of economy to study the efficiency and the effectiveness of such policies. But, so far, there has been no generally accepted evidence suggesting the effectiveness of either the policy in Turkey or around the world. Instead, the dominance of either policy is subject to a change period to period and country to country.
 Purpose of the article: The purpose of this study is to analyze the growth effectiveness of fiscal and monetary policies and then determine which of these two policies is more powerful in promoting economic growth in Turkey over the period 1998 and 2016.
 Methods: To investigate the growth effectiveness of monetary and fiscal policies, we use some of the time series econometric techniques, such as ARDL Bounds testing, structural break unit root tests and Granger causality tests.
 Findings & Value added: Monetary policy variable is creating only short-run effects on growth; but, it?s not causing any Granger causality on it. On the other hand, fiscal policy variable has a long-run significant effect and causing to growth. Thus, the fiscal policy seems to be more effective than monetary policy during examination period, implying the rethinking the implementation of both policies in Turkey. To the best of our knowledge, this study is the first attempt to investigate the relative effectiveness of economic policies on growth in Turkey in terms of both methods used and period chosen.

This study analyzes the economic resilience of Indonesia and Malaysia during the COVID-19 pandemic, focusing on economic stability. The research explores pre-pandemic economic conditions, the impact of COVID-19 on GDP, inflation, unemployment, and government debt, as well as recovery efforts through fiscal and monetary policies. Data from Statistics Indonesia, Department of Statistics Malaysia, World Bank, and IMF were used. Results indicate that Indonesia experienced a faster economic recovery, with GDP growth returning to pre-pandemic levels quicker than Malaysia. The economic impact of the pandemic in Indonesia is lower, supported by the National Economic Recovery Program (PEN) and Bank Indonesia's monetary policy. Malaysia experienced a slower recovery despite fiscal stimulus and monetary intervention from Bank Negara Malaysia. The findings show Indonesia has better economic resilience with a quick recovery on key economic indicators, providing important lessons for policymakers. Economic diversification, efficient government spending, sustainable debt management, flexible monetary policy, and appropriate fiscal policy are key to economic resilience and stability. Future research can focus on the long-term impact of COVID-19 on economic structure and labor market to improve the understanding of economic resilience.

Purpose The main purpose of this study is to see the macroeconomic effects of monetary and fiscal policy shocks in South Africa. Design/methodology/approach The joint effects of monetary and fiscal policy are analyzed by applying short-run contemporaneous restrictions for the identification of shocks in an SVAR in order to derive impulse response functions. Hence, a general AB model of (Amisano and Giannini, 1997) identification scheme, which is not recursive, is employed in this study. Findings The author shows that monetary tightening leads to a fall in real economic activity and depreciates the exchange rate. And in regard to the fiscal policy, the author calculates an initial government spending multiplier of 0.20, which later peaks at 0.40. The tax multiplier is almost 0 on impact and statistically insignificant. However, the author finds evidence supporting the existence of accommodative stance between monetary policy and fiscal policy, which is important for economic and political decision-making. Originality/value Empirical studies that deal with the joint effects of monetary and fiscal policy for South Africa through the SVAR framework are quite limited. This paper, therefore, contributes to the empirical literature on the effects of monetary and fiscal policy in a small open economy like South Africa.

This study aims to analyze the effectiveness of monetary policy. It is important to study the influence channel of monetary policies on the real economy. Based on the structural VAR model, this study uses the monthly data from the Chinese financial sector and actual macroeconomic variables from January 2001 to December 2020 to analyze the influence channel of monetary policy and its impact on the real economy in order to find out about the effectiveness of monetary policy. Focusing on before and after the global financial crisis, this study elaborates on the transmission effects of monetary policy before and after the global financial crisis. The results are as follows. In terms of the impact of rising interest rates, before and after the global financial crisis, industrial production continued to be negatively affected for a long time and consumer prices continued to increase during this period leading to price difficulties. In addition, the money supply and the RMB exchange rate decreased. Due to the shock of rising interest rates, stock indexes have fallen as predicted according to the economic theories. Moreover, because of the shock of rising interest rate, higher money supply, industrial production situation was unexpected before and after the global financial crisis, which led to a positive effect on consumer prices in the short-term. The change of RMB exchange rate was not obvious statistically, but there was a negative effect. During this period, stock indexes was the opposite of expectation. The impact of some macroeconomic variables on monetary policy can be seen as different from predictions based on economic theories and it doesn’t have much statistical significance, indicating the lack of effectiveness and transmission effect of monetary policy. The influence channel and effects of monetary policies are similar to the black box. Inevitably there will be changes in the financial markets and the real economy according to the specific conditions. It also means the influence channel and effects of monetary policy don’t play a vital role. It takes a long time for monetary policies to affect the real economy. Therefore, to maximize the effect of monetary policies, it is essential to determine the current economic situation and implement the policies. Furthermore, it is vital to actively improve the financial market system. Hence, it will be possible to enhance the efficiency of financial resource allocation and enable the financial market to do its roles in structural adjustment and risk prevention.

Kenya’s persistent fiscal deficits and rising public debt have raised critical concerns about the coherence of its macroeconomic policy mix. While fiscal and monetary policies are intended to be complementary, misalignments-especially during political transitions-have often undermined their effectiveness. This study investigates the relative effectiveness of monetary- fiscal policy coordination in managing Kenya’s fiscal deficit by applying Structural Equation Modeling (SEM) to half-yearly data spanning 1990 to 2025.Grounded in Policy Coordination Theory, Functional Finance Theory, and the Fiscal Theory of the Price Level, the study models four latent constructs: monetary policy effectiveness (MPE), fiscal policy effectiveness (FPE), coordination effectiveness (COORD), and public debt dynamics (PDD) [1-4]. Findings reveal that both MPE (β= 0.51, p < 0.01) and FPE (β = 0.36, p < 0.05) significantly influence public debt, while COORD plays a partial mediating role (β = -0.21, p < 0.05). The model fit indices-CFI (0.97), TLI (0.95), and RMSEA (0.04)-confirm the robustness of the proposed framework. Though political regime change was not directly estimated, existing literature supports its moderating effect on policy coordination outcomes. The study underscores that effective coordination-not isolated policy strength-is key to managing fiscal deficits. It advocates for institutional reforms that strengthen coordination platforms and insulate macroeconomic policies from political disruptions, offering insights relevant to both Kenya and comparable developing economies.