Fiscal policy, monetary policy and external imbalances: Cross-country evidence from Africa's three largest economies

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Abstract

This paper determines which of the three policy approaches: fiscal, monetary and exchange rate can better address external imbalances in the three largest African economies, Nigeria, South Africa and Egypt. To this end, use is made of the panel vector autoregressive model to assess the dynamic effects of shocks emanating from the three policy approaches. The findings of the paper indicate that unlike in many emerging and developed economies the current accounts of these three economies react to fiscal, monetary and exchange rate shocks. More particular, the results of the empirical analysis show that the appreciations of the currencies in the three economies lead to current account surpluses. This is mainly attributed to the fact that most African economies have a high propensity to import with limited productive capacity for exports.

Original languageEnglish
Pages (from-to)123-136
Number of pages14
JournalJournal of International Trade and Economic Development
Volume28
Issue number2
DOIs
Publication statusPublished - 17 Feb 2019

Keywords

  • External imbalances
  • exchange rate policy
  • fiscal policy
  • monetary policy
  • panel VAR

ASJC Scopus subject areas

  • Geography, Planning and Development
  • Development
  • Aerospace Engineering

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