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Policy Mix Coherence: What Does it Mean for Monetary Policy in West Africa?

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Author Info

  • René TAPSOBA

    ()
    (Centre d'Etudes et de Recherches sur le Développement International)

  • Jean-Louis COMBES

    ()
    (Centre d'Etudes et de Recherches sur le Développement International)

  • Nasser ARY TANIMOUNE

    ()
    (Université Ottawa)

Abstract

This article examines the influence of Policy Mix coherence in Economic Community of West African States (ECOWAS). The paper innovates in two ways. First, through an interaction between the monetary conditions index and the primary structural fiscal balance, we highlight coherence-type complementarities between monetary policy and fiscal policy with regard to their effects on economic activity. Second, we show that the influence of the coherence of policy mix on the effect of monetary policy is different according to the stance of the economy within the four possible regimes of policy mix, mostly in the WAEMU subsample, where integration is deeper than in the non-WAEMU countries, thanks to the common currency (the Franc CFA) they share. The analysis is based upon a panel dataset from 1990 to 2006 and remains robust to alternative specifications used to calculate the monetary conditions index. Our results contribute to the debate regarding the prospect of an ECOWAS-wide common currency. Indeed, given the heterogeneity in the economic structure of its members States, more policy mix coherence seems necessary to avoid unexpected impacts of monetary policy on economic activity.

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File URL: http://publi.cerdi.org/ed/2012/2012.13.pdf
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Bibliographic Info

Paper provided by CERDI in its series Working Papers with number 201213.

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Length: 19
Date of creation: 2012
Date of revision:
Handle: RePEc:cdi:wpaper:1340

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Keywords: Policy Mix; Structural Fiscal Balance; Monetary Conditions Index; Economic Community of West African States.;

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  1. Alesina, Alberto & Tabellini, Guido, 1987. "Rules and Discretion with Noncoordinated Monetary and Fiscal Policies," Economic Inquiry, Western Economic Association International, vol. 25(4), pages 619-30, October.
  2. Patrick Villieu & Jean-Baptiste Desquilbet, 1998. "L'indépendance de la Banque centrale peut-elle être contreproductive ? Une illustration en économie ouverte," Revue économique, Presses de Sciences-Po, vol. 0(6), pages 1415-1434.
  3. Michael W. Klein & Nancy P. Marion, 1994. "Explaining the Duration of Exchange-Rate Pegs," NBER Working Papers 4651, National Bureau of Economic Research, Inc.
  4. Thomas J. Sargent & Neil Wallace, 1981. "Some unpleasant monetarist arithmetic," Quarterly Review, Federal Reserve Bank of Minneapolis, issue Fall.
  5. Sutherland, Alan, 1995. "Fiscal Crises and Aggregate Demand: Can High Public Debt Reverse the Effects of Fiscal Policy?," CEPR Discussion Papers 1246, C.E.P.R. Discussion Papers.
  6. Fatás, Antonio & Mihov, Ilian, 2002. "The Case for Restricting Fiscal Policy Discretion," CEPR Discussion Papers 3277, C.E.P.R. Discussion Papers.
  7. Duguay, Pierre, 1994. "Empirical evidence on the strength of the monetary transmission mechanism in Canada: An aggregate approach," Journal of Monetary Economics, Elsevier, vol. 33(1), pages 39-61, February.
  8. Pagan, Adrian, 1984. "Econometric Issues in the Analysis of Regressions with Generated Regressors," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 25(1), pages 221-47, February.
  9. Carsten Hefeker, 2010. "Fiscal reform and monetary union in West Africa," Journal of International Development, John Wiley & Sons, Ltd., vol. 22(1), pages 86-102.
  10. Stasavage, David, 1997. "The CFA Franc Zone and Fiscal Discipline," Journal of African Economies, Centre for the Study of African Economies (CSAE), vol. 6(1), pages 132-67, March.
  11. Patrick Plane & Nasser Ary Tanimoune, 2005. "Performance et convergence des politiques économiques en zone franc," Revue Française d'Économie, Programme National Persée, vol. 20(1), pages 235-268.
  12. Ludovic Aubert, 2003. "Les indices des conditions monetaires," Economie Internationale, CEPII research center, issue 96, pages 63-102.
  13. Xavier Debrun & Paul Masson & Catherine Pattillo, 2005. "Monetary union in West Africa: who might gain, who might lose, and why?," Canadian Journal of Economics, Canadian Economics Association, vol. 38(2), pages 454-481, May.
  14. Nasser ARY TANIMOUNE & Jean-Louis COMBES & Patrick PLANE, 2005. "Les effets non linéaires de la politique budgétaire : le cas de l’Union Economique et Monétaire Ouest Africaine," Working Papers 200520, CERDI.
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