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The Effect of Regime Switching Policy Rules on Economic Growth

Jurnal Ekonomi Malaysia

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Title The Effect of Regime Switching Policy Rules on Economic Growth
 
Creator Khalid, Norlin
Marwan, Nur Fakhzan
 
Subject monetary policy; fiscal policy; Markov Regime Switching; economic growth
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Description ABSTRACTThis paper empirically examines the relative effect of active and passive regime policy rules on economic growth. The time series data for a set of South-East Asian countries namely, Malaysia, Thailand and Singapore are used for theperiod 1971-2009. The Markov-switching (MSC) regression method is employed to characterize the regime switching for both monetary and fiscal policy reaction functions for each country. Then, the relative impact of these regime policieson long run output grow this estimated by using Auto Regressive Distributed Lag (ARDL) method. In order to control for different regime of policy rules, the dummy variables are included to capture the regime switching changes. The MSC regression shows that Thailand’s monetary policy is mostly active while fiscal policy is mostly passive throughout the sample covered. When both policies are considered, we note that Thailand changes its policy regimes very frequently. In contrast, Singapore’s regime switching is quite more stable. Singapore was in active monetary and passive fiscal for 20 years from 1971 to 1991. The country was in the passive monetary and passive fiscal regimes for 8 years before switching to passive monetary and active fiscal in year 2000 until 2009. Nevertheless, Malaysia’s monetary policy regimes are characterized as passive at all times while fiscal regime is active throughout the sample study. Furthermore, the ARDL cointegration shows that both monetary and fiscal policies are important in sustaining long run economic growth for Thailand. Meanwhile, Singapore’s economy is only positively determined by monetary policy while fiscal policy is insignificant. As for regime switching, our results indicate that only the monetary policy regime affects the economicgrowth in Thailand. This implies that an active monetary authority will only lead to a lower output growth. However, none of the regime variables is significant for Singapore which indicates that neither active nor passive regime reallymatters for economic growth.Keywords: monetary policy; fiscal policy; Markov Regime Switching; economic growthABSTRAKMakalah ini secara empirikal mengkaji kesan relatif perubahan rejim aktif dan pasif kepada pertumbuhan ekonomi. Satu set data siri masa untuk negara-negara Asia Tenggara iaitu Malaysia, Thailand dan Singapura digunakan untuktempoh 1971-2009. Kaedah regresi Markov Regime-switching (MSC) digunakan untuk mencirikan peralihan rejim bagi kedua-dua fungsi tindak balas dasar monetari dan fiskal bagi setiap negara. Seterusnya, kesan relatif perubahanrejim terhadap pertumbuhan output jangka panjang dianggarkan menggunakan kaedah Autoregressive Distributed Lag (ARDL). Pembolehubah dummy dimasukkan untuk mengambilkira pertukaran rejim aktif dan pasif. Keputusan MSC menunjukkan bahawa dasar monetari di Thailand kebanyakannya aktif manakala dasar fiskal kebanyakannya pasif di sepanjang tempoh kajian. Apabila kedua-dua dasar monetari dan fiskal digabungkan, didapati Thailand mengalamiperubahan rejim dasar yang sangat kerap. Sebaliknya, pertukaran dasar rejim di Singapura adalah lebih bersifat stabil. Singapura berada dalam keadaan aktif dasar monetari dan pasif dasar fiskal selama 20 tahun dari tahun 1971 hingga1991. Seterusnya, negara ini berada dalam rejim pasif monetari dan pasif fiskal selama 8 tahun sebelum beralih kepada pasif monetari dan aktif fiskal pada tahun 2000 sehingga 2009. Berbeza dengan kes Malaysia pula dimana rejim dasar monetari sentiasa pasif dan rejim fiskal sentiasa aktif sepanjang tempoh kajian. Hasil keputusan kointegrasi ARDL pula menunjukkan bahawa kedua-dua dasar fiskal dan monetari adalah penting dalam mengekalkan pertumbuhan ekonomi jangka panjang bagi negara Thailand. Sementara itu, ekonomi Singapura hanya positif ditentukan oleh dasar monetari manakala dasar fiskal adalah tidak ketara. Berdasarkan pembolehubah dummy pertukaran regim, didapati hanya regim dasar monetari memberi kesan kepada pertumbuhan ekonomi di Thailand secara negatif. Ini bermakna dasar aktif monetari hanya akan membawa kepada pertumbuhan ekonomi yang lebih rendah di Thailand. Walau bagaimanapun, tiada pembolehubah dummy rejim didapati signifikan bagi Singapura dan seterusnya menunjukkan bahawa perubahan rejim aktif dan pasif tidak memberi kesan kepada pertumbuhan ekonomi jangka panjang.Kata kunci: Dasar monetari; dasar fiskal; Markov Regime Switching; pertumbuhan ekonomi
 
Publisher Universiti Kebangsaan Malaysia
 
Contributor —
 
Date 2013-12-31
 
Type info:eu-repo/semantics/article
info:eu-repo/semantics/publishedVersion
Peer-reviewed Article
 
Format application/pdf
 
Identifier http://ejournal.ukm.my/jem/article/view/7268
 
Source Jurnal Ekonomi Malaysia; Vol 47, No 2 (2013): Jurnal Ekonomi Malaysia; 93-109
0126-1962
 
Language eng
 
Relation http://ejournal.ukm.my/jem/article/view/7268/2922