The Growth Effect of the Expansionary Monetary and Fiscal Policies Applied in the Periods When the Economies Shrank: Developed and Developing Countries Cases

Abstract

Expansionary policies are implemented in periods when economies shrink and are generally considered to have a positive effect on growth. However, the structural differences, development levels and basic growth dynamics of the economies are as decisive as the applied policy set and composition. In this study, the effects of expansionary monetary and fiscal policies applied in developed and developing countries during the economic recession on growth are examined, considering basic growth dynamics, and the short- and long-term outlooks are analyzed. To measure the effectiveness of ex- pansionary policy in developed and developing countries, 55 developed and 55 developing countries are studied. For each monetary and fiscal policy, the 2007-2009 period applications are considered, while the effects of the main growth variables are examined during the 2007-2016 period. The system GMM method is used in the panel to see the reflections of policy effectiveness on growth in the 10 years. While the results reveal how structural differences in the two country groups affect the effectiveness of policies, they also show that monetary and fiscal policies have different effects on growth.