IDEAS home Printed from https://ideas.repec.org/p/pra/mprapa/99213.html

Tests for Fiscal Dominance in the Anglophone West Africa and Guinea: A Quantile Regression Approach

Author

Listed:
  • Mogaji, Peter Kehinde

Abstract

Fiscal policy is dominant (over monetary policy) when the stability of the price level has turned to be fiscal policy’s concern, thus making monetary policy redundant in the pursuant of the crucial price stability objective. This is a point of reversal of monetary policy and fiscal policy roles. By giving room to a high level of public debt, fiscal policy takes over the role of stabilising the price level from monetary policy. In effect, a fiscal dominance regime therefore connotes a system in which monetary tools are applied to guarantee the solvency of the government. This paper examined fiscal dominance in the Anglophone West Africa (The Gambia, Ghana, Liberia, Nigeria and Sierra Leone) and Guinea. These six countries were known as the West African Monetary Zone – WAMZ. This study is significant because of the need for the stability of the future monetary union which would be characterised by a single monetary policy in the West African sub-region while the fiscal policy governance would be at the national levels. The huge implication of fiscal dominance is that its absence is one of the conditions for the optimal functioning of monetary policy in achieving its objectives. The paper considered the view-points in Fiscal Theory of Price Level (FTPL) as put forward by Leeper (1991). Dynamic quantile regressions within the context of the autoregressive distributed lag (ARDL) specification were applied. This allowed for necessary dynamic adjustments with the ARDL modelling in which inflation rate as the response (dependent) variable was regressed on the lagged value of itself and lagged value of fiscal ratios as the independent variables in the study covering the period between 1980 and 2014. Evidence gathered from this research work led the broad suggestion that fiscal dominance could not be ‘significantly’ established in the Anglophone West African countries and Guinea (the WAMZ). The implications this has for the future monetary union is that there are evidence to suggest that price stability in each of the WAMZ countries were achieved through the use of fiscal policy instruments at national levels and that monetary policy is not dormant in these economies. These results suggest that the common monetary policy would be active in achieving its desired goals, whereas, national fiscal policy would have no effects in this respect as six different fiscal policies would be left at individual national levels

Suggested Citation

  • Mogaji, Peter Kehinde, 2017. "Tests for Fiscal Dominance in the Anglophone West Africa and Guinea: A Quantile Regression Approach," MPRA Paper 99213, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:99213
    as

    Download full text from publisher

    File URL: https://mpra.ub.uni-muenchen.de/99213/1/MPRA_paper_99213.pdf
    File Function: original version
    Download Restriction: no
    ---><---

    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. J. B. Taylor & Harald Uhlig (ed.), 2016. "Handbook of Macroeconomics," Handbook of Macroeconomics, Elsevier, edition 1, volume 2, number 2.
    3. Campbell Leith & Eric Leeper, 2016. "Understanding Inflation as a Joint Monetary-Fiscal Phenomenon," Working Papers 2016_01, Business School - Economics, University of Glasgow.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Ricardo Reis, 2016. "Can the Central Bank Alleviate Fiscal Burdens?," Discussion Papers 1701, Centre for Macroeconomics (CFM).
    2. Łyziak, Tomasz & Mackiewicz-Łyziak, Joanna, 2020. "Does fiscal stance affect inflation expectations? Evidence for European economies," Economic Analysis and Policy, Elsevier, vol. 68(C), pages 296-310.
    3. Amélie Barbier‐Gauchard & Thierry Betti, 2021. "Spillover effects of fiscal policy in a monetary union: Why do fiscal instruments matter?," Bulletin of Economic Research, Wiley Blackwell, vol. 73(1), pages 1-33, January.
    4. Leeper, Eric M. & Li, Bing, 2017. "Surplus–debt regressions," Economics Letters, Elsevier, vol. 151(C), pages 10-15.
    5. 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.
    6. Berentsen, Aleksander & Kraenzlin, Sébastien & Müller, Benjamin, 2018. "Exit strategies for monetary policy," Journal of Monetary Economics, Elsevier, vol. 99(C), pages 20-40.
    7. Bai, Yuting & Kirsanova, Tatiana & Leith, Campbell, 2017. "Nominal targeting in an economy with government debt," European Economic Review, Elsevier, vol. 94(C), pages 103-125.
    8. Chatelain, Jean-Bernard & Ralf Kirsten, 2016. "Countercyclical versus Procyclical Taylor Principles," EconStor Preprints 129796, ZBW - Leibniz Information Centre for Economics.
    9. Giancarlo Corsetti & Bartosz Maćkowiak, 2024. "Gambling to Preserve Price (and Fiscal) Stability," IMF Economic Review, Palgrave Macmillan;International Monetary Fund, vol. 72(1), pages 32-57, March.
    10. Battistini, Niccolò & Callegari, Giovanni, 2020. "Public spending at the effective lower bound: how significant are the sustainability risks?," Research Bulletin, European Central Bank, vol. 67.
    11. Hollmayr, Josef & Kühl, Michael, 2019. "Monetary–fiscal interaction and quantitative easing," Economics Letters, Elsevier, vol. 174(C), pages 200-207.
    12. Ignacio Lozano-Espitia & Fernando Arias-Rodríguez & Jesus Bejarano & Andres Gonzalez & Clark Granger-Castaño & Franz Hamann & Yurany Hernández-Turca & Juan Manuel Julio-Román & Martha López & Juan C. , 2019. "La política fiscal y la estabilización macroeconómica en Colombia," Revista ESPE - Ensayos sobre Política Económica, Banco de la Republica de Colombia, issue 90, pages 1-60, April.
    13. Mitsuru Katagiri & Yusuke Oh & Yasutaka Ogawa & Nao Sudo & Takeki Sunakawa, 2024. "On the Interaction between Monetary and Fiscal Policy: Developments in Macroeconomics since the Global Financial Crisis," IMES Discussion Paper Series 24-E-12, Institute for Monetary and Economic Studies, Bank of Japan.
    14. John Cochrane, 2022. "A fiscal theory of monetary policy with partially repaid long-term debt," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 45, pages 1-21, July.
    15. Florio, Anna, 2018. "Nominal anchors and the price puzzle," Journal of Macroeconomics, Elsevier, vol. 58(C), pages 224-237.
    16. António Afonso & Joshua Jablonowski, 2025. "Fiscal Regimes And Sustainability: Insights From Post-War Germany," Working Papers REM 2025/0392, ISEG - Lisbon School of Economics and Management, REM, Universidade de Lisboa.
    17. Lindé, J. & Smets, F. & Wouters, R., 2016. "Challenges for Central Banks’ Macro Models," Handbook of Macroeconomics, in: J. B. Taylor & Harald Uhlig (ed.), Handbook of Macroeconomics, edition 1, volume 2, chapter 0, pages 2185-2262, Elsevier.
    18. Liu, Ding & Sun, Weihong & Chang, Long, 2021. "Monetary–fiscal policy regime and macroeconomic dynamics in China," Economic Modelling, Elsevier, vol. 95(C), pages 121-135.
    19. Albert, Juan-Francisco & Peñalver, Antonio & Perez-Bernabeu, Alberto, 2020. "The effects of monetary policy on income and wealth inequality in the U.S. Exploring different channels," Structural Change and Economic Dynamics, Elsevier, vol. 55(C), pages 88-106.
    20. Olivier Coibion & Yuriy Gorodnichenko & Michael Weber, 2021. "Fiscal Policy and Households’ Inflation Expectations: Evidence from a Randomized Control Trial," NBER Working Papers 28485, National Bureau of Economic Research, Inc.

    More about this item

    Keywords

    ;
    ;
    ;
    ;
    ;

    JEL classification:

    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy; Modern Monetary Theory
    • E63 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Comparative or Joint Analysis of Fiscal and Monetary Policy; Stabilization; Treasury Policy
    • E65 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Studies of Particular Policy Episodes
    • H6 - Public Economics - - National Budget, Deficit, and Debt
    • P5 - Political Economy and Comparative Economic Systems - - Comparative Economic Systems

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:pra:mprapa:99213. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Joachim Winter (email available below). General contact details of provider: https://edirc.repec.org/data/vfmunde.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.