The Efficacy of Monetary and Fiscal Policies on Economic Growth: Evidence from Thailand
The study finds that Monetary Policy (MP) is generally more consistent with expected growth outcomes and more effective in sustaining long-term economic expansion. Specifically, broad money (M2) and currency devaluation positively impact growth by stimulating economic activity, aligning with Keynesian economic principles. Conversely, policy interest rates and inflation negatively affect growth by curbing investment and consumption. Notably, MP proves highly effective during prolonged high-growth periods, making it a reliable tool for sustaining economic momentum.
In contrast, Fiscal Policy (FP) demonstrates stronger localized effects, particularly during economic downturns. The study reveals that government revenue and expenditure negatively impact growth, possibly due to non-productive spending or reduced disposable income from taxation. However, government debt positively influences growth, reflecting the benefits of public investments in infrastructure and economic stimulus programs. FP is notably effective in accelerating recovery from slow-growth periods, with shorter transition durations (5.48 quarters) compared to MP (11.08 quarters). This underscores FP's role in stimulating demand and supporting economic recovery during recessions.
The research also emphasizes the importance of policy coordination, highlighting that a combined MP and FP approach enhances growth potential while reducing transition periods between economic phases. The study suggests that MP is more effective in high-growth regimes, whereas FP is crucial for rapid recovery in low-growth scenarios. Consequently, a strategic coordination of MP and FP is recommended, with MP supporting long-term growth and FP driving recovery during downturns.