Fiscal and Monetary Policy on Economic Growth

This paper contributes to the debate between the monetarists and fiscalists concerning the relative effectiveness of monetary and fiscal policy. Employing data from 16 Asian and Latin American countries, it sheds new light on the debate by attempting to address two questions. First, which set of policies is more effective in affecting the sources of economic growth and promoting growth? Second, does the interaction between relative competence of policies and policy competence have implications on economic growth. The work reveals that in this group of countries there does not seem to be a prevailing rule as to which set of policies is more important in determining economic growth. The interaction between policy relative effectiveness and policy competence also appears to present a mixed picture. In some countries which have achieved sustained fast growth, the more successful set of policies is also more effective. However there are cases where policy is reasonably competent and the more successful set of policies is more effective, and yet the economy has a disastrous growth performance, and cases where policy conduct is largely adequate and the worse set of policy exerts more influence, and yet the economy accomplishes reasonable growth.