Monetary–Fiscal Policy Coordination and Economic Growth in the Republic of Moldova

Abstract

This study analyzes the coordination of fiscal and monetary policy in the Republic of Moldova to maintain financial stability and promote sustainable economic growth. Since the 1960s, there has been a continuous debate about the appropriate policy mix to achieve economic goals such as high employment and low inflation. It is well known that changes in aggregate demand and supply can lead to fluctuations in production and employment. As a result, monetary and fiscal policymakers can address these fluctuations using the instruments at their disposal to stabilize the economy. After the pandemic crisis, the monetary authority made a considerable contribution to bringing inflation close to its target, maintaining price stability and safeguarding people’s purchasing power. The analysis applies annual macroeconomic data, a correlation matrix, Ordinary Least Squares (OLS) models with Autoregressive Distributed Lag (ARDL), and trend analysis on monetary policy variables (broad money, lending rates, exchange rates) and fiscal policy variables (government expenditure, tax revenue) over the period 1991-2024. These empirical results indicate that the fiscal ARDL model provides the highest explanatory power, while tax revenue (β≈1.2151, p-value < 0.0014) depicts a positive and statistically significant relationship with GDP growth. Prior to estimation, Augmented Dickey-Fuller (ADF) tests were conducted to check stationarity, and Variance Inflation Factor (VIF) diagnostics were used to assess multicollinearity. The results highlight the importance of efficient tax administration and fiscal capacity. Policy coordination would improve the government’s ability to respond to economic fluctuations and support sustainable long-term growth. JEL: E52, E62, G18, I28, F43, O42; UDC: [338.23:336.74+336.22]:338.1(478)