Mitigating the effects of a pandemic in sub-Saharan Africa: are fiscal and monetary policy complementary or contradictory?

Olumide O. Olaoye and Mulatu F. Zerihun

International Journal of Emerging Markets, 2023, vol. 20, issue 5, 2205-2218

Abstract: Purpose - The study examined the roles of fiscal and monetary policy in reducing poverty in sub-Saharan Africa (SSA), while accounting for macroeconomic disruptions. In particular, the study examined the complementarity of fiscal and monetary policy to mitigate shocks and reduce poverty in SSA. Design/methodology/approach - The study adopts the fixed effect (within regression) model to account for country-specific characteristics, and a cross-sectional dependence – consistent model to control for the potential cross-sectional in panel data modelling. The study used the dummy variable approach to account for the macroeconomic shocks. The authors assigned 1 to the following years – 2008, 2014 and 2020; and 0 otherwise to take care of the global financial crisis, commodity terms of trade shocks and the COVID-19 pandemic respectively. Findings - The study found that fiscal policy (particularly, government spending on health and education) has the greater capacity to reduce the level of poverty in SSA. The results also indicate that fiscal policy and monetary policy can work in tandem to reduce the negative effects of a pandemic. However, the study found an optimal threshold level of monetary policy beyond which monetary policy reduces the effectiveness of fiscal policy to reduce poverty in SSA. The research and policy implications are discussed. Originality/value - The study, unlike previous studies, accounts for the impact of macroeconomic shocks in the monetary/fiscal policy and poverty literature.

Keywords: Fiscal policy; Monetary policy; Complementarity; Macroeconomic shocks; Cross-sectional dependence; SSA (search for similar items in EconPapers)
Date: 2023
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Persistent link: https://EconPapers.repec.org/RePEc:eme:ijoemp:ijoem-04-2023-0503

DOI: 10.1108/IJOEM-04-2023-0503

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