Monetary and Fiscal Policies Interaction in Developing Countries’ Economy: Evidence From Ukraine

Abstract

examines the relationship between fiscal and monetary policy instruments in Ukraine in the period of 2010-2017yy. Empirical results have shown that the development of the state's economy depends on the interconnection of fiscal monetary policies. Such deterministic connection implies the presence of additive and combined types of models in the economic analysis of fiscal and monetary policies, the calculation of which will allow to check the following alternative hypotheses:-if the government introduces fiscal and monetary policies for expansion (monetary expansion / fiscal expansion (ME / FE)), GDP and employment will increase, but there is a risk of inflation;-if the government introduces fiscal restrictions / monetary expansion (ME / FR), then the GDP growth rate will slow down, inflation will decrease and employment increase;-if the government introduces a fiscal expansion / monetary restriction (FE / MR), it will lead to GDP growth, a decrease in unemployment, but an increase in inflationary expectations;-if the government introduces fiscal restrictions / monetary restrictions (MR / FR), we will see a slight increase in GDP, lowering unemployment at a low inflation rate. It was established that the simultaneous achievement of fiscal and monetary policy indicators in Ukraine was impossible. This is due to the fact that these indicators turned out to be incompatible with the result, which resulted in the use of multi-directional tools for regulating fiscal and monetary markets. The revealed contradictions in the interaction of instruments made it impossible to achieve the positive result-growth / stabilization of economic indicators. The study will be useful to executives, academics and practitioners in order to choose the methods of applying fiscal and monetary policy instruments to stimulate economic development.