The relative effectiveness of fiscal and monetary policies on economic growth in five ASEAN countries

The issues of fiscal policy dependency, vulnerabilities of domestic economy, frail financial uphold, and small fiscal multiplier motivated this study to examine the relationship between fiscal and monetary policies and economic growth in ASEAN-5 for the period of 1970-2015 by using the autoregressive distributed lag (ARDL) and Toda Yamamoto method. Expenditure is significant in ASEAN-5 economies except for Indonesia. Implementation of non-tax in the long run results in expenditure being significant in ASEAN-5 except in Indonesia: tax and non-tax are significant in the Philippines, Thailand, and Singapore: and debt is significant in Indonesia and Thailand. The policy contributes to the Philippines and Thailand to increase the rate of non-tax in support of the growing expenditure. Singapore highly recommends increasing the rate of tax and non-tax to decrease its accrued debt. The interest rate is significant in Indonesia and the Philippines, inflation is significant in Indonesia and Thailand, and the
exchange rate is significant in Indonesia and Malaysia. The result provides useful information about the existence of cost channel in Indonesia. Singapore recommends reducing its control in the exchange rate as the exchange market may not be well developed because of lesser integration with international financial markets. The results support the views of the St Louis Model that asserts monetary policy is relatively more effective than fiscal policy in Indonesia, and vice versa in Malaysia. Monetary dominance exists in the Philippines, and there is cooperation between fiscal and monetary policies in Singapore and Thailand. Interaction policies exist in ASEAN-5 except Indonesia. Causality in the interaction term is found in Indonesia supporting the Post Keynesian theory of endogenous money, and in Thailand it supports the Non-Ricardian theory. Monetary authorities should be transparent in monetary tools and fiscal authorities to ensure growth stability through accountability in contractionary or expansionary policies in aggregate demand using the fiscal instrument