Macroeconomic Policy Coordination and Economic Growth Uncertainty in West Africa

Abstract

Research background Understanding the rationale for macroeconomic policy coordination with the aim of achieving greater policy credibility and effectiveness in West Africa still remains the subject of debate. Purpose This study evaluates the effect of macroeconomic policy coordination on economic growth uncertainty in West Africa, utilizing a panel data set of the 15 member states from 1980 to 2020. Research methodology The study employed Pedroni’s cointegration test procedure and the Generalized Linear Model, fixed effect procedure for evaluation. Results The stationarity test results show that the variables are stationary at first difference at the 5% significant level, for the common and individual effect tests respectively. The cross section dependence test result indicates that there exists a cross-sectional independence for the variables under consideration. Pedroni’s cointegration test results indicate that there exists a long run relationship between economic growth uncertainty and macroeconomic policy variables. The fixed effect model result shows that monetary policy variable, inflation (INF) affect growth uncertainty negatively. The fiscal policy variable, government debts (DEBTS) indicates a positive sign to growth uncertainty and is significant statistically. The coefficient of the regional trade variable, (TRADE) and exchange rate indicate positive signs and are insignificant statistically. Novelty It is important to ascertain how uncertainty affect policy coordination gains. Thus this study has utilized the econometric models approach to evaluate the effect of policy decisions as economies encounter exogenous policy shocks in the face of uncertainty, in order to ascertain if coordination is preferred to individual policy decisions.