Interaction of Mongolian fiscal and monetary policy

Bayar Bolortuya (2020) Interaction of Mongolian fiscal and monetary policy. Külkereskedelmi Kar.

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Absztrakt (kivonat)

The macroeconomic policy aims to improve citizens quality of life through economic growth, keep inflation and unemployment as low as possible, and reduce the budget and balance of payments deficit. To achieve these goals, the government conducts fiscal policy, and the central bank holds monetary policy within the framework of guidelines and concepts. The main tools of fiscal policy are instruments such as taxes, transfers, and government expenditures, while the central bank's monetary policy is implemented through policy rate and money supply regulation. Sargent and Wallace, (1981) summed up that implementing monetary policy is difficult when fiscal policy is unstable, also introduced the notion of a "monetary-dominated" regime and a "fiscal-dominated" regime. Under monetary regimes, the monetary authority determines monetary policy independently, while under monetary regimes, the fiscal authority determines the budget and budget deficits independently. In the Mandell-Fleming model, increasing public spending or reducing taxes shifts the IS curve to the right, increasing aggregate demand, which in turn pressures interest rates and encourages foreign capital inflows. It increases imports and strengthens the exchange rate. On the other hand, boosting the money supply shifts the LM curve to the right; it is decreasing interest rates, which causes the capital outflow. As a result, the supply of the national currency increases, and the exchange rate weakens so export grows. In the early 1990s, Mongolia's transition from a planned economy to a market economy required the government to use new mechanisms to regulate the economy. Despite the mistakes, achievements, and difficulties of the transition period, external and internal factors, and lack of knowledge and skills to work in the new environment, the economy reached pre-transition levels in the early 2000s and continued to grow and improve people's lives. GDP per capita has increased tenfold since 1993 to USD 4,294.1. The issues of generating budget revenues, streamlining its spending, improving the coordination between them, and planning the proper budget remain essential. In the case of Mongolia, large budget deficits and instability pose economic risks. As a result of fiscal reform, Mongolia's budget revenues are growing every year, but the budget has been approved with a fixed deficit, budgetary accountability and financial discipline have been lost, and fiscal policy expansion has continued. In 2016, the budget deficit reached 15 percent of GDP, indicating that the government's influence on the economy is growing. During this period, the implementation of the monetary policy target of single-digit inflation has been inferior. In case of Mongolia, when government spending increases, which is rising GDP; therefore, aggregate demand increases, and demand inflation grows. The central bank takes measure to reduce inflation, raises the policy interest rate, and it causes low money supply, which in turn reduces production growth and inflation. In terms of monetary policy, it is aimed at hedging against fiscal policy risks, and its impact on the economy is higher than fiscal policy. The study used the IS-LM model to estimate the equilibrium of previous years, and the VAR model used the policy shock response to determine the interaction between fiscal and monetary policies and their impact on the economy.

Intézmény

Budapesti Gazdasági Egyetem

Kar

Külkereskedelmi Kar

Tanszék

Nemzetközi Gazdaságtan Tanszék

Tudományterület/tudományág

NEM RÉSZLETEZETT

Szak

Nemzetközi Gazdaság és Gazdálkodás (angol)

Konzulens(ek)

Mű típusa:	diplomadolgozat (NEM RÉSZLETEZETT)
Kulcsszavak:	IS-LM model, Mongolia, VAR model, makroökonómiai egyensúly, pénzügyi egyensúly, pénzügypolitika
SWORD Depositor:	Archive User
Felhasználói azonosító szám (ID):	Archive User
Rekord készítés dátuma:	2020. Nov. 29. 19:45
Utolsó módosítás:	2022. Okt. 13. 11:06

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