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Interaction of Monetary and Fiscal Policies in Turkey: A Dynamic Time Series Data Analysis

Author

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  • Guler, Asli

    (Ordu University)

Abstract

Monetary and fiscal policies are designed and implemented by different government agencies, each with its own objectives, resources, constraints, and incentives. The actions of monetary authority may affect the fiscal authority’s public debt management and fiscal deficit. On the other side, the fiscal authority’s action also may affect the stance of monetary policy and its results. This paper aims to find the level of fiscal or monetary dominance by evaluating the interaction of monetary and fiscal policies in Turkey for relevant period. For this purpose, it was examined the relationship between inflation rate, monetary policy interest rate, fiscal deficit, public debt in Turkey for 2000 to 2018 by using VAR and ARDL model. According to the results obtained from VAR analysis monetary variables significantly affect fiscal variables. However, there is no evidence of fiscal dominancy on monetary policy. The evidence acquired via ARDL bound test supports these findings. Hereunder, it can be concluded that monetary policy is dominating fiscal policy in the relevant period.

Suggested Citation

  • Guler, Asli, 2019. "Interaction of Monetary and Fiscal Policies in Turkey: A Dynamic Time Series Data Analysis," Business and Economics Research Journal, Uludag University, Faculty of Economics and Administrative Sciences, vol. 10(5), pages 1039-1049, October.
    • Handle: RePEc:ris:buecrj:0441
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    Citations

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    Cited by:

    1. Tetik Metin & Yıldırım Mustafa Ozan, 2021. "Distortionary effects of economic crises on policy coordination in Turkey: Threshold GMM approach," Economics and Business Review, Sciendo, vol. 7(3), pages 83-102, September.

    More about this item

    Keywords

    Unpleasant Monetarist Arithmetic; Monetary dominancy; Fiscal Dominancy; Policy Interaction;
    All these keywords.

    JEL classification:

    • E37 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Forecasting and Simulation: Models and Applications
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy; Modern Monetary Theory

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