The Impact of Monetary Policy and Fiscal Expenditure on Long-Term Economic Sustainability

Abstract

This unique study examines the effect of monetary policy and fiscal expenditure on long-term economic sustainability in five Asian economies (Bangladesh, India, Indonesia, Pakistan and Republic of Korea) over the period of 1991-2022. Panel data analysis is used to examine the effects of monetary policy, as measured by the money supply, and fiscal expenditure as measured by general government final consumption expenditures, on long-term economic sustainability as measured by GDP. Inflation, gross national savings, trade, and total population are all control variables. The empirical findings of random-effects regression models indicate that the general government final consumption expenditure (FCON), gross savings (GNS), trade (TRD) and total population (LPOP) and have a significant positive effect on sustainable growth while BMNY and INF have a significantly negative impact on long-term economic sustainability (LGDP). However, fixed effects indicate that FCON, GNS, LPOP have a positive and significant impact on LGDP while BMNY has a negative significant impact on LGDP while INF and TRD both showed insignificant results. The importance of population dynamics and monetary policy in promoting sustainable economic growth is highlighted by these findings. To promote long-term economic sustainability, policymakers should prioritize controlling inflation, adopting effective monetary policies, and promoting savings. The research adds to the body of knowledge by presenting empirical evidence on the precise impacts of monetary policy and fiscal expenditure on sustainable economic growth in Asian economies