Effects of cyclical policies on economic growth in the Franc Zone

Abstract

This article finds its affiliation in the budgetary theory of the price level. It proposes the simultaneous study of cyclical shocks in the Franc Zone, using a structural PVAR model combining activity, prices, a real short-term interest rate, the primary budget balance and the external debt. The effects and transmission times of budgetary and monetary impulses on GDP appear to be differentiated in the two short-term monetary unions. The cyclical components of the BEAC and BCEAO refinancing rates are positively linked to those of the primary deficits in the Franc Zone. Fiscal policies have a negative effect on GDP growth. However, monetary policies produce positive shocks on the development of economic growth in these two monetary unions. It is therefore necessary that the monetary authorities relax the rules of monetary policy by reducing interest rates, which will also revive activity. And governments then have no incentive to increase their deficit.