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

Christian Nguena

No 13_009, AAYE Policy Research Working Paper Series from 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.

Keywords: Monetary union; Saving-investment causality; Heterogeneity; Fiscal coordination (search for similar items in EconPapers)
JEL-codes: C51 C59 E62 F43 H50 O40 (search for similar items in EconPapers)
Pages: 26 pages
Date: 2013-08, Revised 2013-11
New Economics Papers: this item is included in nep-mac
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Working Paper: Heterogeneity of Saving-Investment Causality and Fiscal Coordination Implication: The Case of an African Monetary Union (2013)
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