How does fiscal policy affect monetary policy in the Southern African Community (SADC)?

Moses Obinyeluaku and Nicola Viegi

MPRA Paper from University Library of Munich, Germany

Abstract: Fiscal policy can affect monetary policy either through debt monetisation or through a direct effect on price dynamics. The former is the conventional classical view rooted in the quantity theory of money while the latter is the modern view of the Fiscal Theory of Price Determination. Based on the dynamic response of inflation to different shocks, we test the relationship between fiscal balances and monetary stability in 10 SADC countries. Results show that five out of 10 countries considered here were characterised throughout the period 1980-2006 by fiscally dominant regimes, with weak or no response of primary surpluses to public liabilities. The remaining five countries exhibit a monetary dominant regime. The study also finds that changes in primary surpluses affect price variability via aggregate demand, suggesting that fiscal outcomes could be a direct source of inflation variability, hence, the need for policy coordination in the region.

Keywords: African Economic Integration; Fiscal Monetary Policy Coordination; VAR Analysis. (search for similar items in EconPapers)
JEL-codes: C01 C22 E63 (search for similar items in EconPapers)
Date: 2009-05-25
New Economics Papers: this item is included in nep-afr, nep-cba, nep-mac and nep-mon
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Persistent link: https://EconPapers.repec.org/RePEc:pra:mprapa:15372

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