Abstract:
In order to promote sustainable economic growth, there is a need for WAEMU
countries to implement an appropriate policy mix. The study empirically
analyses the relative effectiveness of monetary and fiscal policy on economic
growth in WAEMU countries. The investigation of the relative effect of both
policies was done in an unrestricted vector autoregressive VAR framework
which was based on a modified version of the St Louis model. The VAR model
was analysed using the Impulse Response Functions (IRFs) and Variance
decompositions (VDCs). The results showed that in WAEMU countries, the
effect of fiscal policy on growth is more important and lasting relative to
monetary policy. However, due to the differences in their macroeconomic
structure, the effect of both policies on growth in terms of sign and magnitude
differs from one country to the other.
Promoting growth in WAEMU countries would therefore require the
implementation of reforms to improve the quality of public spending.
Furthermore, economic reforms to improve liquidity trading, strengthen
financial intermediation and reduce excess liquidity in the financial market
would help increase the effectiveness of monetary policy in the zone.