Fiscal Reaction Functions in the CFA Zone: An Analytical Perspective

21 Pages Posted: 28 Nov 2007

See all articles by Olumuyiwa Adedeji

Olumuyiwa Adedeji

International Monetary Fund (IMF)

Oral H. Williams

International Monetary Fund (IMF)

Date Written: October 2007

Abstract

The stance of fiscal policy in CEMAC and WAEMU is strongly influenced by fiscal effort in the previous period. This persistence underscores the risks of a procyclical fiscal policy stance, given these countries' high degree of dependence on primary commodities and exposure to terms of trade shocks. This paper finds that the coefficient of the lagged debt stock was significant and positive, consistent with the theory that higher levels of debt warrant greater fiscal effort. Various measures of economic performance, as captured by economic growth and per capita GDP, openness, and the terms of trade were also found to be important factors in explaining fiscal performance. As fiscal performance seems to be strongly affected by both real GDP growth and terms of trade fluctuations, there appears to be a need to develop supplementary fiscal-related criteria that take into account the influence of output and the terms of trade.

Keywords: Working Paper, Fiscal policy, Central African Economic and Monetary Community, West African Economic and Monetary Union, Debt sustainability analysis, Economic growth, Economic models

Suggested Citation

Adedeji, Olumuyiwa and Williams, Oral H., Fiscal Reaction Functions in the CFA Zone: An Analytical Perspective (October 2007). IMF Working Papers, Vol. , pp. 1-19, 2007. Available at SSRN: https://ssrn.com/abstract=1033212

Olumuyiwa Adedeji (Contact Author)

International Monetary Fund (IMF) ( email )

700 19th Street NW
Washington, DC 20431
United States

Oral H. Williams

International Monetary Fund (IMF) ( email )

700 19th Street NW
Washington, DC 20431
United States

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