The Relative Effectiveness of Monetary and Fiscal Policies:Evidence from Jordan

Abstract

The study aims at investigating the relative effectiveness of monetary and fiscal policies on economic growth of Jordan during the period 1977- 2019 using Autoregressive Distributed Lag (ARDL) methodology. The variables of the study were integrated of different orders as indicated by Augmented Dickey-Fuller (ADF) unit root test. Bounds cointegration test revealed that there is a cointegrated long-run relationship between the study variables. The study results showed that there is a statistically significant positive long-run relationship between real GDP and each of broad money supply and total government expenditures. Moreover, the long-run coefficient of money supply was much greater than that of government expenditures, implying that the effectiveness of monetary policy is higher than that of fiscal policy in affecting the economic performance, and both policies can be implemented to stimulate the economic growth in Jordan. Therefore, the study recommends the Jordanian government to improve the management of fiscal policy by controlling its current expenditures, increasing the productive investments, as well as applying a comprehensive tax reform in order to strengthen the role of fiscal policy in boosting the economic growth.