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Monetary-Fiscal Policy Interactions and Tests for Monetary Dominance in the West African Monetary Zone

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  • Mogaji, Dr Peter Kehinde

Abstract

This study applied the fiscal rule suggested by Davig and Leeper (2005, 2013) in which government revenue/GDP ratio reacts to government expenditure ratio, public debt ratio and output gap in modelling fiscal policy in the WAMZ. The applied monthly monetary and fiscal data span from 2001M1 to 2015M12. The econometric estimation method employed is the regime switching regressions of Markov regime switching models of the Taylor monetary rule (augmented by interest rate smoothing) and of the fiscal rule augmented with lagged values of government revenue scaled by output. Estimation results are varied across the six WAMZ countries. Given the high probability of staying in either of the regime, for the six WAMZ countries, these results are good enough for the membership of the proposed monetary integration of West Africa.

Suggested Citation

  • Mogaji, Dr Peter Kehinde, 2017. "Monetary-Fiscal Policy Interactions and Tests for Monetary Dominance in the West African Monetary Zone," MPRA Paper 86721, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:86721
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    References listed on IDEAS

    as
    1. Leeper, E.M. & Leith, C., 2016. "Understanding Inflation as a Joint Monetary–Fiscal Phenomenon," Handbook of Macroeconomics, in: J. B. Taylor & Harald Uhlig (ed.), Handbook of Macroeconomics, edition 1, volume 2, chapter 0, pages 2305-2415, Elsevier.
    2. Davig, Troy & Leeper, Eric M. & Walker, Todd B., 2011. "Inflation and the fiscal limit," European Economic Review, Elsevier, vol. 55(1), pages 31-47, January.
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    5. Sims, Christopher A, 1994. "A Simple Model for Study of the Determination of the Price Level and the Interaction of Monetary and Fiscal Policy," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 4(3), pages 381-399.
    6. Woodford, Michael, 2001. "Fiscal Requirements for Price Stability," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 33(3), pages 669-728, August.
    7. J. B. Taylor & Harald Uhlig (ed.), 2016. "Handbook of Macroeconomics," Handbook of Macroeconomics, Elsevier, edition 1, volume 2, number 2.
    8. Campbell Leith & Eric Leeper, 2016. "Understanding Inflation as a Joint Monetary-Fiscal Phenomenon," Working Papers 2016_01, Business School - Economics, University of Glasgow.
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    JEL classification:

    • F33 - International Economics - - International Finance - - - International Monetary Arrangements and Institutions

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