Fiscal dominance and the effectiveness of monetary policy: An empirical analysis of BRICS-T countries

This study aims to analyse the impact of fiscal dominance on monetary policy in the BRICS countries and Türkiye. The main hypothesis of the study is that in economies where fiscal dominance is high, the independence of monetary policy decreases and inflationary pressures increase. Additionally, by examining the effect of fiscal dominance on aggregate demand, the study aimed to determine whether the structure was Ricardian or Non-Ricardian. The study used panel data analysis for the period 2000-2022, with the Driscoll-Kraay estimator, to examine the effects of fiscal dominance on inflation and aggregate demand. The findings reveal that public borrowing increases the variance of inflation and aggregate demand, limits the effectiveness of monetary policy, causes fluctuations in interest rates, and raises economic vulnerability. In conclusion, it is emphasized that ensuring sustainable fiscal discipline in developing countries is critical for the implementation of effective monetary policies while maintaining the independence of central banks.