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

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]