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Fiscal policy, Monetary policy and External imbalances: Cross-country evidence from Africa’s three largest economies (Nigeria, South Africa and Egypt)

Bonga-Bonga, Lumengo (2017): Fiscal policy, Monetary policy and External imbalances: Cross-country evidence from Africa’s three largest economies (Nigeria, South Africa and Egypt).

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Abstract

This paper assesses which of the policy between fiscal, monetary and exchange rate policies can redress external imbalances in the three largest African countries, namely Nigeria, South Africa and Egypt. To this end, use is made of the panel vector autoregressive (PVAR) model to assess the dynamic effects of fiscal, monetary and exchange rate shocks mainly on the current account balances. The findings of the paper indicate that contrary to many emerging and developed economies the current account reacts to fiscal, monetary and exchange rate shocks in the three largest economies in Africa. More particular, the results of the empirical analysis show that the appreciation of the currency in the three economies lead to current account surplus. This is mainly attributed to the fact that most African economies have a high propensity to import with limited productive capacity for exports.

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