The Impact of Monetary and Fiscal Policies on Northeast Economics Using VAR Models

Abstract

This research was aimed to analyze the impacts of monetary and fiscal policy factors on Northeastern dynamic economics and the relationship between the factors using VAR (Vector Autoregressive). Secondary time-series data obtained from 1995 - 2018 comprised target economic variables including income, inflation and international trade, and policy factors including monetary policy, fiscal policy and exchange rate policy. Unit Root Test was applied for testing stationary and optimal lag was selected. The long-run relationship was examined using Cointegration Test and the relationship between monetary and fiscal policies was evaluated to find out the impacts on the Northeast economics.  

The results of the study showed that change of Northeastern gross regional product in the present year was directly affected by the change of export price in the past year. Increasing of 1 percent in export price resulted in increasing of 0.01 percent in Northeastern Gross regional product. Moreover, increasing of 1 percent in government expenditure in the past year resulted in increasing of 0.12 percent in Gross Regional product increased. On the other hand, 1 percent decreasing in average exchange rate for US dollar to Baht in the past 2 years had an impact on increasing of 0.34 percent in Gross Regional product. 

Meanwhile, the impact assessment in the relationship between monetary and fiscal policies was analyzed by individual factor components based on the variances. The assessment results revealed that the export price had the most effective impact on Northeastern gross regional product, followed by exchange rate for US dollar to Baht and government expenditure. In terms of monetary and fiscal policies in order to consider promoting and supporting the use of these policies, it was found that government expenditure had an impact on the gross domestic products of 1.34 percent whereas the interbank lending interest rate had an impact on the gross regional product of 0.75 percent. These results reflected that fiscal policy had the most effective impacts on the stimulation of Northeastern region economics.