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Relative Effectiveness of Monetary and Fiscal Policies on Output Growth in Bangladesh: A VAR Approach

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  • Md. Habibur Rahman

Abstract

This paper investigates the relative importance of monetary and fiscal policies in altering real output of Bangladesh. An unrestricted vector auto regression (VAR) framework based on the St. Louis equations, is used to compute variance decompositions (VDCs)and impulse response function (IRF) through 1000 Monte Carlo Simulations. A 'Monetary— Fiscal Game' under oligopolistic framework is also used to justify the co-ordination and co-operation between the monetary and fiscal authorities. The outcomes of this study imply that monetary policy is relatively more effective than fiscal policy in stimulating real economic activity. The results also confirm the presence of interactions between monetary and fiscal policies. [BB WP no.0601]

Suggested Citation

  • Md. Habibur Rahman, 2009. "Relative Effectiveness of Monetary and Fiscal Policies on Output Growth in Bangladesh: A VAR Approach," Working Papers id:2100, eSocialSciences.
  • Handle: RePEc:ess:wpaper:id:2100
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    References listed on IDEAS

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    12. NAJAM us SAQIB & ATTIYA YASMIN, 1987. "Some Econometric Evidence on the Relative Importance of Monetary and Fiscal Policy in Pakistan," The Pakistan Development Review, Pakistan Institute of Development Economics, vol. 26(4), pages 541-551.
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    Keywords

    monetary policy; fiscal policy; Bangladesh; vector auto regression (VAR); variance decompositions (VDCs); impulse response function (IRF); Monetary— Fiscal Game; St. Louis equations.;

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