The Potency of Fiscal and Monetary Policy of the Asean Five from 2005 To 2015: A Modified St. Louis Model Approach

Abstract

This paper identified which between the policies, monetary or fiscal stimulus can further accelerate the growth of aggregate output among the member countries of the Association of South East Asian Nations (ASEAN). The researcher selected five countries in the ASEAN, namely: Philippines, Thailand, Malaysia, Singapore, and Indonesia, as the focus of the study.The main objective of this study was to weigh the impact of fiscal and monetary policy on the Gross Domestic Product of the ASEAN Five.More specifically, this study attempted to provide answers to the following related questions: 1) what is the behavior of Government Expenditures, Money Supply and Real Gross Domestic Product of the ASEAN Five from 2005 to 2015?;; 2) is there a significant regional difference in the impact of Government Expenditures and Broad Money to the Real Gross Domestic Product between the ASEAN Five? ; and 3) which among the panel regression model is appropriate to be used in this study?The research paper utilized the descriptive and inferential approaches to determine which between monetary and fiscal policy, is more effective in influencing the aggregate output of the ASEAN Five. Finally, the researcher took into account the difference in the Real Gross Domestic Product across the ASEAN 5. The researcher used the panel data regression model from 2005 to 2015 adopting the St. Louis Model. Furthermore, the researcher chose to use the lag value by running various models and has chosen from various Akaike Information Criterion (AIC) value points.The researcher found out, after adopting the modified St. Louis Model and using the three panel data regressions namely, pooled least squares, fixed effect and random effect models, that both Government Expenditures and Broad Money has a significant influence on the Real Gross Domestic Product of the ASEAN Five. The appropriate model that was utilized in the discussion of the variables was random effect model. From the analysis of the results, the researcher also found out that fiscal policy better policy to be used at present but monetary policy is the more potent policy in the long run. The researcher concluded that the random effect model is the best and appropriate model to discuss and describe the variables. The researcher recommended that ASEAN Five countries continue to practice effective government expenditures in the region. More so, policy makers should provide an effective mechanism to spend government funds, hence this study implied that fiscal policy is a faster stabilization and influencing tool in the economy.