Comparative Effects of Monetary and Budgetary Policies on the Economy of Burkina Faso

Edmond Lankouande

doi:10.7176/dcs/10-11-05

Abstract

The article analyzes on three-time horizons the comparative effects of monetary and budgetary policies on the economy of Burkina Faso. It uses two models: error correction model and vector autoregressive model. Taking into account the passage from West African Monetary Union to West African Economic and Monetary Union and econometric results indicating a break in 1994 (year of the devaluation of the currency: XOF), the period of study 1970-2010 is split in two: 1970-1993 and 1994 -2010. The results show, on the economy of Burkina Faso, monetary policy has been more effective than budgetary policy in these three periods. From 1970 to 1993, budgetary policy was ineffective on economic growth. On the period 1994-2010, the effects of monetary and budgetary policies have been weak and statistically insignificant. The devaluation of the XOF and the adoption of the Pact of Convergence of the WAEMU did not really contribute significantly to the country's economic growth. Keywords: budgetary policy, monetary policy, error correction model, vector autoregressive model, Burkina Faso DOI: 10.7176/DCS/10-11-05 Publication date: November 30 th 2020

Highlights

The West African Monetary Union (WAMU), created in 1962, marks the determination of these member countries, currently eight, to stimulate their economies through monetary cooperation in order to get mutual benefits
LGDP is stationary in level while logarithm of total public expenditure (LDT), logarithm of total public revenue (LRT), logarithm of the money supply M2 (LMM) and logarithm consumer price index (LIPC) are stationary in first difference
The objective of the article is a comparative analysis of the effects of monetary and budgetary policies on the economy of Burkina Faso

Summary

Introduction

The West African Monetary Union (WAMU), created in 1962, marks the determination of these member countries, currently eight, to stimulate their economies through monetary cooperation in order to get mutual benefits. Their monetary policy benefits relative stability because it escapes manipulation by public authorities. The terms of trade deteriorated by around 45% between 1985 and 1992 To these difficulties were added the lack of harmonization and coordination between budgetary and monetary policies. It is in this context that the West African Economic and Monetary Union (WAEMU) was created in 1994 (Sarr and Ndiaye, 2010). In 1999, there was the adoption of the Pact of Convergence, Stability, Growth and Solidarity organized around criteria, which countries make an effort to be able to respect

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