Should fiscal policy be abandoned in a monetary union?: The case of countries of Central African Monetary and Economic Community

The objective of this paper is to study the effects of fiscal policy on economic activity in the countries of the Monetary and Economic Community of Central Africa over a period of high public debt. Based on SVAR modelling with shock identification using the Choleski method, applied to quarterly data from 1992 to 2012, we find that public spending shocks have negative effects on economic growth in all countries of this union. These effects are favoured by deflation, which discourages supply, and rising interest rates, which crowd out demand. In terms of economic policy recommendations, sanctions for non-compliance with multilateral surveillance criteria should take account of the state of the economic situation (the scale of recession).