Monetary vs Fiscal Policy, Which is More Effective? Case Studies of Asean-5 Countries

Abstract

Purpose of this study is to analyze the effectiveness of monetary and fiscal policies on economic growth in ASEAN-5 (Indonesia, Malaysia, Philippines, Thailand, and Vietnam) from 1998 to 2019. Monetary policy is measured from inflation, fiscal policy is measured from government spending, and economic growth is measured from GDP's growth based on constant prices 2010. Data analysis techniques use Vector Auto Regressive (VAR), Impulse Response Function (IRF), and Variance Decomposition (VD). The results show that monetary policy is much more effective than fiscal policy in Asean-5. Fiscal policy is considered ineffective in this study, it does not mean that fiscal policy in ASEAN-5 has not had any influence on economic growth, but the point is, the role of fiscal policy during the study period is less than monetary policy. Given the irregular allocation of budget funds and non-productive expenditures by the fiscal authorities, the ineffectiveness of fiscal policy is not surprising. In addition, in an unstable market environment, the implementation of fiscal policy is highly determined and controlled by political forces. Jel Classification: N1;O23; O4