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Heterogeneity of Saving-Investment Causality and Fiscal Coordination Implication: The Case of an African Monetary Union

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  • NGUENA, Christian L.

Abstract

Monetary unions are characterized by contemporary institutional arrangements that entrust monetary policy to a supranational entity while fiscal policies are framed by rules imposed on the budget deficit. Limits on public deficits are usually justified by the idea that government deficits reduce national savings, which ultimately reduces domestic investment and economic growth. However, this idea that domestic savings must necessarily increase if investment increases cannot be taken for granted. Moreover, it is possible that within the union, countries reveal different saving-investment causality, which is capable of rendering considerable credibility and effectiveness of budgetary rules of government deficits systematic prohibition as a means to revitalize investment. This study raises the question of domestic savings-investment causality in an African monetary union with a focus on the WAEMU zone. It has been determined in each country from a methodology based on co integration vector representations analysis leading to error correction. The existence of a causality heterogeneity between savings-investment in this African monetary union leads to consider a new model of fiscal coordination in Africa incorporating this heterogeneity, including the adoption of a new budget rule more flexible based on a structural balance without public investment.

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Bibliographic Info

Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 49411.

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Date of creation: 05 Mar 2011
Date of revision: 31 Aug 2013
Handle: RePEc:pra:mprapa:49411

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Keywords: monetary union; savings-investment causality; heterogeneity; fiscal coordination.;

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  1. Asongu Simplice, 2012. "Real and Monetary Policy Convergence: EMU Crisis to the CFA Zone," Working Papers 12/033, African Governance and Development Institute..
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  4. Simplice A Asongu, 2013. "A Short-run Schumpeterian Trip to Embryonic African Monetary Zones," Economics Bulletin, AccessEcon, vol. 33(1), pages 859-873.
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  12. Thomas I. Palley, 1996. "The Saving-Investment Nexus: Why it Matters and How it Works," SCEPA working paper series. SCEPA's main areas of research are macroeconomic policy, inequality and poverty, and globalization., Schwartz Center for Economic Policy Analysis (SCEPA), The New School 1996-01, Schwartz Center for Economic Policy Analysis (SCEPA), The New School.
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