The Relative Importance of Monetary and Fiscal Policies in Economic Activity: A Comparison between Jordan and Tunisia by Using an Error Correction Mechanism (ECM)

Ahmad I. Malawi

Abstract


The purpose of this paper is to investigate the relative importance of monetary and fiscal policies for Jordan and Tunisia. Unlike previous studies, a vector error correction model is applied on St. Louis-type reduced form equation. Analysis of the unit roots tests, Johansen cointegration test, and the Granger causality results based on the joint F-tests are utilized. The analysis is undertaken with annual data spanning over thirty three years in logarithms form from 1972 until 2004. It turns out, in general, that fiscal policy has stronger effect than monetary policy has on economic activity, whence fiscal policy can be utilized as a stabilization policy in both countries.


Keywords


Monetary Policy, Fiscal Policy, Jordanian Economy, Tunisian Economy, Error-Correction Mechanism.

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