How does fiscal policy affect monetary policy in the Southern African Community (SADC)?
AbstractFiscal policy can affect monetary policy either through debt monetisation or through a direct effect on price dynamics. The former is the conventional classical view rooted in the quantity theory of money while the latter is the modern view of the Fiscal Theory of Price Determination. Based on the dynamic response of inflation to different shocks, we test the relationship between fiscal balances and monetary stability in 10 SADC countries. Results show that five out of 10 countries considered here were characterised throughout the period 1980-2006 by fiscally dominant regimes, with weak or no response of primary surpluses to public liabilities. The remaining five countries exhibit a monetary dominant regime. The study also finds that changes in primary surpluses affect price variability via aggregate demand, suggesting that fiscal outcomes could be a direct source of inflation variability, hence, the need for policy coordination in the region.
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Bibliographic InfoPaper provided by University Library of Munich, Germany in its series MPRA Paper with number 15372.
Date of creation: 25 May 2009
Date of revision:
African Economic Integration; Fiscal Monetary Policy Coordination; VAR Analysis.;
Find related papers by JEL classification:
- C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models &bull Diffusion Processes
- E63 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Comparative or Joint Analysis of Fiscal and Monetary Policy; Stabilization; Treasury Policy
- C01 - Mathematical and Quantitative Methods - - General - - - Econometrics
This paper has been announced in the following NEP Reports:
- NEP-AFR-2009-05-30 (Africa)
- NEP-ALL-2009-05-30 (All new papers)
- NEP-CBA-2009-05-30 (Central Banking)
- NEP-MAC-2009-05-30 (Macroeconomics)
- NEP-MON-2009-05-30 (Monetary Economics)
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