Measuring the influence of fiscal and monetary policies on the stock market performance of the ASEAN-4 countries

• Main Authors: Fernando, Zaira Pauline C., Garcia, Ysabelle Celene C., Sarita, Dannica Dennise L., Severo, Ronnie D., Cuartero, Rene D., Patiu, Liberty S.
• Format: text
• Published: Animo Repository 2019
• Subjects: Stock exchanges—Southeast Asia; Southeast Asia— Economic policy
• Online Access: https://animorepository.dlsu.edu.ph/faculty_research/9465
• Institution: De La Salle University

The research primarily aims to assess the effect of the interaction between fiscal and monetary policies on the stock market returns of the ASEAN-4 countries. Past literature has mostly focused on the isolated effect of fiscal policies and that of monetary policies with varying results. At present, there is still a limited amount of studies that intently examined the combined effect of both policies. As such, this study aims to uncover the combined impact of both policies in the context of a developing region, using the ASEAN-4 countries – Indonesia, Malaysia, Thailand, and the Philippines – from 1997 to 2016. The researchers constructed a panel dataset with secondary data gathered from the World Bank, the International Monetary Fund, and FRED Economic Data. An Ordinary Least Squares (OLS) regression approach was utilized in the study as a result of diagnostic tests that suggest that an OLS regression model would provide the best fit for the nature and structure of the data. Regression results reveal that monetary policy alone had a significant impact on stock returns, especially those proxied by real effective exchange rate, interest rate, and real GDP. Measures for fiscal policy did not have significant impact on stock returns. However, when both monetary and fiscal policies are implemented at the same time, monetary policy remains statistically significant in affecting stock market performance, and fiscal policy measures become statistically significant in influencing movements in stock market performance. This may suggest that from our study, effective monetary policy has the potential to make fiscal policies more effective in causing movements in corporate stock performance.