This study explores the relative effectiveness of monetary and fiscal policies on economic growth in Bangladesh for the period from fiscal year 1974 to2015 employing cointegration and Vector Error Correction Model (VECM). We use nominal GDP as a proxy for economic growth, while broad money supply (M2) and reserve money (RM) as proxies for monetary policy. Total government revenue (TR) and total government expenditure (TE) are used as proxies for fiscal policy. The Johansen cointegration tests reveal that monetary policy (M2 and RM) has a greater long run positive impact on economic growth over fiscal policy in Bangladesh. The results of VECM show that there is a weak long run causality running from monetary and fiscal policies to economic growth. VECM also finds that GDP, M2 and TR play a part to adjust any disequilibrium, while TR picks up the disequilibrium rapidly and guides the variables of the system back to equilibrium. VECM Granger causality/block exogeneity Wald test results show that M2 is the leading indicator with respect to economic growth in Bangladesh in the short run. Moreover, economic growth is a leading indicator with respect to fiscal policy in the short run. Thus, we conclude that monetary policy is the more effective channel than fiscal policy to promote economic growth in the short run and long run in Bangladesh.
| Published in | Economics (Volume 5, Issue 1) |
| DOI | 10.11648/j.eco.20160501.11 |
| Page(s) | 1-7 |
| Creative Commons |
This is an Open Access article, distributed under the terms of the Creative Commons Attribution 4.0 International License (http://creativecommons.org/licenses/by/4.0/), which permits unrestricted use, distribution and reproduction in any medium or format, provided the original work is properly cited. |
| Copyright |
Copyright © The Author(s), 2016. Published by Science Publishing Group |
Economic Growth, Monetary Policy, Fiscal Policy, Cointegration, Causality
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APA Style
Md. Abu Hasan, Md. Ashraful Islam, Md. Abul Hasnat, Md. Abdul Wadud. (2016). The Relative Effectiveness of Monetary and Fiscal Policies on Economic Growth in Bangladesh. Economics, 5(1), 1-7. https://doi.org/10.11648/j.eco.20160501.11
ACS Style
Md. Abu Hasan; Md. Ashraful Islam; Md. Abul Hasnat; Md. Abdul Wadud. The Relative Effectiveness of Monetary and Fiscal Policies on Economic Growth in Bangladesh. Economics. 2016, 5(1), 1-7. doi: 10.11648/j.eco.20160501.11
AMA Style
Md. Abu Hasan, Md. Ashraful Islam, Md. Abul Hasnat, Md. Abdul Wadud. The Relative Effectiveness of Monetary and Fiscal Policies on Economic Growth in Bangladesh. Economics. 2016;5(1):1-7. doi: 10.11648/j.eco.20160501.11
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Download@article{10.11648/j.eco.20160501.11,
author = {Md. Abu Hasan and Md. Ashraful Islam and Md. Abul Hasnat and Md. Abdul Wadud},
title = {The Relative Effectiveness of Monetary and Fiscal Policies on Economic Growth in Bangladesh},
journal = {Economics},
volume = {5},
number = {1},
pages = {1-7},
doi = {10.11648/j.eco.20160501.11},
url = {https://doi.org/10.11648/j.eco.20160501.11},
eprint = {https://article.sciencepublishinggroup.com/pdf/10.11648.j.eco.20160501.11},
abstract = {This study explores the relative effectiveness of monetary and fiscal policies on economic growth in Bangladesh for the period from fiscal year 1974 to2015 employing cointegration and Vector Error Correction Model (VECM). We use nominal GDP as a proxy for economic growth, while broad money supply (M2) and reserve money (RM) as proxies for monetary policy. Total government revenue (TR) and total government expenditure (TE) are used as proxies for fiscal policy. The Johansen cointegration tests reveal that monetary policy (M2 and RM) has a greater long run positive impact on economic growth over fiscal policy in Bangladesh. The results of VECM show that there is a weak long run causality running from monetary and fiscal policies to economic growth. VECM also finds that GDP, M2 and TR play a part to adjust any disequilibrium, while TR picks up the disequilibrium rapidly and guides the variables of the system back to equilibrium. VECM Granger causality/block exogeneity Wald test results show that M2 is the leading indicator with respect to economic growth in Bangladesh in the short run. Moreover, economic growth is a leading indicator with respect to fiscal policy in the short run. Thus, we conclude that monetary policy is the more effective channel than fiscal policy to promote economic growth in the short run and long run in Bangladesh.},
year = {2016}
}
TY - JOUR T1 - The Relative Effectiveness of Monetary and Fiscal Policies on Economic Growth in Bangladesh AU - Md. Abu Hasan AU - Md. Ashraful Islam AU - Md. Abul Hasnat AU - Md. Abdul Wadud Y1 - 2016/01/31 PY - 2016 N1 - https://doi.org/10.11648/j.eco.20160501.11 DO - 10.11648/j.eco.20160501.11 T2 - Economics JF - Economics JO - Economics SP - 1 EP - 7 PB - Science Publishing Group SN - 2376-6603 UR - https://doi.org/10.11648/j.eco.20160501.11 AB - This study explores the relative effectiveness of monetary and fiscal policies on economic growth in Bangladesh for the period from fiscal year 1974 to2015 employing cointegration and Vector Error Correction Model (VECM). We use nominal GDP as a proxy for economic growth, while broad money supply (M2) and reserve money (RM) as proxies for monetary policy. Total government revenue (TR) and total government expenditure (TE) are used as proxies for fiscal policy. The Johansen cointegration tests reveal that monetary policy (M2 and RM) has a greater long run positive impact on economic growth over fiscal policy in Bangladesh. The results of VECM show that there is a weak long run causality running from monetary and fiscal policies to economic growth. VECM also finds that GDP, M2 and TR play a part to adjust any disequilibrium, while TR picks up the disequilibrium rapidly and guides the variables of the system back to equilibrium. VECM Granger causality/block exogeneity Wald test results show that M2 is the leading indicator with respect to economic growth in Bangladesh in the short run. Moreover, economic growth is a leading indicator with respect to fiscal policy in the short run. Thus, we conclude that monetary policy is the more effective channel than fiscal policy to promote economic growth in the short run and long run in Bangladesh. VL - 5 IS - 1 ER -
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