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

  • NGUENA, Christian L.

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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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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  1. Nelson, Charles R. & Plosser, Charles I., 1982. "Trends and random walks in macroeconmic time series : Some evidence and implications," Journal of Monetary Economics, Elsevier, vol. 10(2), pages 139-162.
  2. Ibrahim A. Elbadawi & Francis M. Mwega, 2000. "Can Africa's Saving Collapse Be Reversed?," World Bank Economic Review, World Bank Group, vol. 14(3), pages 415-443, September.
  3. Granger, C W J, 1969. "Investigating Causal Relations by Econometric Models and Cross-Spectral Methods," Econometrica, Econometric Society, vol. 37(3), pages 424-38, July.
  4. Johansen, Soren & Juselius, Katarina, 1990. "Maximum Likelihood Estimation and Inference on Cointegration--With Applications to the Demand for Money," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 52(2), pages 169-210, May.
  5. Asongu Simplice, 2012. "Are Proposed African Monetary Unions Optimal Currency Areas? Real, Monetary and Fiscal Policy Convergence Analysis," Working Papers 12/006, African Governance and Development Institute..
  6. Asongu Simplice, 2012. "A Short-run Schumpeterian Trip to Embryonic African Monetary Zones," Working Papers 12/001, African Governance and Development Institute..
  7. Asongu Simplice, 2012. "Real and Monetary Policy Convergence: EMU Crisis to the CFA Zone," Working Papers 12/033, African Governance and Development Institute..
  8. Bencivenga, V.R. & Smith, B.D., 1988. "Financial Intermediation And Endogenous Growth," RCER Working Papers 124, University of Rochester - Center for Economic Research (RCER).
  9. Johansen, Soren, 1995. "Likelihood-Based Inference in Cointegrated Vector Autoregressive Models," OUP Catalogue, Oxford University Press, number 9780198774501, March.
  10. Constantinos Alexiou, 2002. "An Econometric Investigation into the Macroeconomic Relationship between Investment and Saving: Evidence from the EU Region," Working Papers 455, Queen Mary University of London, School of Economics and Finance.
  11. 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. 1996-01, Schwartz Center for Economic Policy Analysis (SCEPA), The New School.
  12. repec:cup:cbooks:9780521066310 is not listed on IDEAS
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