Abstract
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.
Highlights
Reacting to the economic conditions is generally seen as the main purpose of using monetary and fiscal policy instruments by policymakers
We investigate the relative effectiveness of monetary policy and fiscal policy on economic growth in Turkey over the period of 1998Q1–2016Q3 by using Autoregressive Distributed Lag (ARDL) Bounds testing approach to cointegration and Granger causality tests
The results of the study indicate that even though monetary policy has a positive short-run effect on growth, the fiscal policy matters for growth both in the short run and long run. These results are supported by the Granger causality tests indicating bidirectional causality running from fiscal policy variable to growth
Summary
Reacting to the economic conditions is generally seen as the main purpose of using monetary and fiscal policy instruments by policymakers. Even though monetary policy is mainly designed to respond to inflation, and fiscal policy to the state of public finance, both policies can be used to react to economic activity. As is pointed out by (Guerguil et al, 2017), because of large and prolonged growth and employment costs of the crisis, the limited effect of monetary policy when interest rates are stuck at the zero-lower-bound, and the necessity of increased public expenditure to avoid a “secular stagnation” in this environment, there is a great deal of consensus among economists and policy makers for the use of fiscal policy as a countercyclical instrument. There is no consensus about the macroeconomic effects of fiscal policy, since while large fiscal deficits can crowd out private spending, a protracted public investment-led fiscal stimulus can boost economic growth
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