Assessing the Effectiveness of the Fiscal-Monetary Policy Mix: Evidence from Morocco, Egypt and Saudi Arabia

The macroeconomic effects of the policy mix have been the subject of a rich array of theoretical literature. Our research paper further enriches the empirical literature and goes beyond a single open economy analysis by proposing a multi-country assessment of the policy mix in the Middle East and North Africa (MENA) region, under the two hypotheses of monetary and fiscal dominance. We base our study on a structural vector autoregression (SVAR) approach performed on secondary data over the period 1977-2021 for three MENA countries: Morocco, Egypt, and Saudi Arabia. Our data is sourced from World Development Indicators and includes five variables: Current account balance (percent of GDP) (CA), inflation rate (INF), GDP growth (annual percent) (GDP), money supply (M3), and government expenditure (GEXP). The results show that the coordination scheme choice has no significant effect on the policy mix effectiveness in the three countries. The policy mix in Morocco is more effective in preserving price stability whereas stabilization policies in Egypt are more effective in boosting economic activity. Because of its limited exposure to energy price risk (i.e., imported inflation), Saudi Arabia has a wider margin of maneuver in implementing growth-oriented policies without imperiling price stability. Considering that previous studies gave different views on whether monetary or fiscal policies are more effective in a single open economy analysis, to our knowledge, no relevant studies have performed a multi-country assessment of the policy mix in the MENA region. This research provides an empirical framework for analyzing the macroeconomic implications of monetary and fiscal policies in the MENA region, allowing us to draw interesting conclusions about the effectiveness of the policy mix in the sample countries.