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Fiscal Dominance In The West African Monetary Zone: An Empirical Investigation

Author

Listed:
  • Ibrahima Diallo

    (West African Monetary Institute, Accra, Ghana)

  • Isatou Mendy

    (West African Monetary Institute, Accra, Ghana)

Abstract

This paper investigates the existence or otherwise of Fiscal dominance (non-Ricardian) regime in the West African Monetary Zone (WAMZ) from 1990 through 2017 using a Structural Vector Auto Regressive (SVAR) approach. Following Canzoneri, Cumby and Diba (2000), the study made use of public liabilities and primary balance as the main variables of the model. Our findings confirm the existence of fiscal dominance regime in Ghana, Guinea and Sierra Leone, and monetary dominance regime in The Gambia and Nigeria. The main policy recommendations proffered are that fiscal policy should be based on an active reaction function for countries with fiscal dominant regimes in order to allow primary surplus respond to change in debt thereby ensuring credibility and solvency. For those that exhibit Recardian regimes phenomena, they should have robust and effective monetary policy re-enforced by strong and efficient institutions, autonomous and devoid of any fiscal interference and policy accommodation that may lead to inflation bias.

Suggested Citation

  • Ibrahima Diallo & Isatou Mendy, 2018. "Fiscal Dominance In The West African Monetary Zone: An Empirical Investigation," West African Journal of Monetary and Economic Integration, West African Monetary Institute, vol. 18(1), pages 21-46, June.
    • Handle: RePEc:wam:journl:v:18:y:2018:i:1:p:21-46
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    Cited by:

    1. Barrie, Mohamed Samba & Jackson, Emerson Abraham, 2022. "The impact of fiscal dominance on macroeconomic performance in Sierra Leone: a DSGE simulation approach," EconStor Open Access Articles and Book Chapters, ZBW - Leibniz Information Centre for Economics, vol. 22(1), pages 1-33.

    More about this item

    Keywords

    Fiscal Dominance; Fiscal and Monetary Policy; SVAR; WAMZ.;
    All these keywords.

    JEL classification:

    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy; Modern Monetary Theory

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