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

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  • Christian Lambert Nguena

    (Association of African Young Economists)

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 reducesdomestic 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 the WAEMU zone. It has been determined in each country from a methodology based on co integration vector representations analyze leading to error correction. The existence of a causality heterogeneity between savings-investment in the WAEMU zone leads to consider a new model of fiscal coordination incorporating this heterogeneity, including the adoption of a new budget rule more flexible based on a structural balance without public investment.

Suggested Citation

  • Christian Lambert Nguena, 2013. "Heterogeneity of Saving-Investment Causality and Fiscal Coordination Implication: The Case of an African Monetary Union," AAYE Policy Research Working Paper Series 13_009, Association of African Young Economists, revised Nov 2013.
    • Handle: RePEc:aay:wpaper:13_009
    as

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    More about this item

    Keywords

    Monetary union; Saving-investment causality; Heterogeneity; Fiscal coordination;
    All these keywords.

    JEL classification:

    • C51 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Construction and Estimation
    • C59 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Other
    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy; Modern Monetary Theory
    • F43 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Economic Growth of Open Economies
    • H50 - Public Economics - - National Government Expenditures and Related Policies - - - General
    • O40 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - General

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