FISCAL DISCIPLINE AND REAL EXCHANGE RATE STABILITY IN A HETEROGENEOUS MONETARY UNION: THE CASE OF WAEMU

Abstract

This research work aims to analyze the nominal convergence of budgetary variables resulting from the respect of the convergence criteria and the impact of convergence indicators on the exchange rate volatility inner the WAEMU members States. From that end we have conducted the empirical analysis of budgetary convergence in the WAEMU zone by using variables such are: expenditure, incomes and budgetary balances. In order to reach our goal, we have adopted the methodology used by Barro et Salai-Martin (1992) which methodology is implemented by the European Union through the work of Villien et al. (2003). This methodology is consisted of following in the course of the timing an indicator of variable dispersion which may stand as a typical margin or the variance. The results show a global trend to budgetary variables convergence. And then, we have assessed the different indicators of sigma convergence on the profitable exchange rates differential in the WAEMU zone. The model used has revealed the existence of a mechanism of correcting error between the desired exchange rate observed in the zone.