Asymmetric effects of monetary and fiscal policies on macroeconomic variables: The Turkish case

In this study, it is aimed to compare the efficiency of monetary and fiscal policy as well as to compare the expansionary-contractioanry policy by investigating the asymmetric effects of monetary and fiscal policies with positive-negative shock asymmetry. In addition, it is aimed to contribute to the literature by testing the asymmetric effects of price, exchange rate and output shocks on variables other than monetary and fiscal policies. The analysis was carried out with monthly data covering the period 2005: 12-2019: 08. Monetary policy variables used in the analysis are M2 which is defined as money supply and policy interest rate. Moreover, fiscal policy variables are determined as government revenues (taxes) and non-interest government expenditures. Selected macroeconomic variables; industrial production index representing output, real effective exchange rate representing exchange rate, producer price index representing prices and unemployment. The NARDL method developed by Shin, Yu, Greenwood-Nimmo (2014) and the asymmetric causality test developed by Hatemi-J (2012) were used in the analysis. Obtained findings revealed that monetary and fiscal policies have asymmetric effects on macroeconomic variables in the period discussed in Turkey. It was concluded that the expansionary effects of government expenditures on output are more than the contractionary effects and narrowing effects of government revenues on output are more than their expansionary effects as well as being seen that fiscal policy is effective both in the context of expansionary and contractionary policy. Another finding is that expansionary shocks of monetary policy on output are statistically significant whereas contractionary shocks are not significant. The results show that both fiscal and monetary policy are effective in dealing with recession and stimulating economic activity, and the interest rate, which is one of the monetary policy tools, is the most effective policy tool since it both stimulates economic activity and decreases unemployment.