TITLE:
Spillover Effects of Budgetary Policies in Monetary Union: The Case of WAEMU
AUTHORS:
Chérif Sidy Kane, Ismaila Sanghare
KEYWORDS:
Budget Externality, Structural Heterogeneity, PVEC Model, WAEMU
JOURNAL NAME:
Theoretical Economics Letters,
Vol.8 No.15,
December
6,
2018
ABSTRACT: With the help of a vector model for dynamic panel error
correction (PVEC), this article examines the extent to which a country’s policy
shocks spread to the economic activity of other countries in the West African
Economic and Monetary Union (WAEMU). The results of one part, the emergence of
externalities that cause asymmetric shocks and another part, the public
expenditure shocks induce greater spillover effects on economic growth than
public revenue shocks. Both results imply the structural heterogeneity of
economies, leading to an uneven distribution of the benefits and costs of a
common monetary policy. Therefore, corrective measures can be applied, through
a real policy mix, which can reduce the risks of instability related to
budgetary externalities.