Heterogeneity of Debt Policies of WAEMU Countries: Convergence or Disparity of Economies

Abstract

The impact of monetary policy on economic activity in integrated currency areas may be affected by factors that are primarily related to the convergence of economic structures and fiscal policies. In economic analysis, convergence is used to characterize the process of reconciling economies with respect to certain macroeconomic variables. This notion could involve both real and nominal convergences. Our methodology is inspired by the work of Diarra (2016) and in keeping with the spirit of multilateral surveillance, which consists of judging the performances of the states with respect to the criteria. A modification was made to the convergence sigma technique. This modification involved estimating the deviation from the norm only if it is not respected. If the standard is respected, we consider that the difference is nil. The analysis of the convergence sigma reveals a heterogeneity of WAEMU country behaviour in the convergence process. This state of affairs is explained by structural differences. Economies react differently when they are affected by asymmetric shocks. Because fiscal policy is the only stabilization instrument, it reflects the divergence of preferences in economic policy. The results show that the disparities in WAEMU economies are related to the asymmetric shocks affecting them and to the structural heterogeneity that results in non - cooperative use of budget instruments.