Monetary and fiscal policy both influence important macroeconomic variables and policymakers use different policy instruments to achieve their respective policy objectives. Fiscal policy may affect the efficiency of monetary policy through its impact on aggregate demand, while monetary policy may affect fiscal policy through its effects on the interest rates the government pays on its debt.
This research focuses on the Southern African Customs Union (SACU) area, South Africa, Botswana, Lesotho, Namibia and Swaziland. South Africa dominates this asymmetric monetary union by, effectively, determining monetary policy that stabilises inflation. Member countries are responsible for their fiscal policies (growth and employment). There is a high degree of economic interdependence, where policy actions in one member country can have an impact on other member countries via various direct and indirect spillovers.
This research evaluates how the monetary and fiscal policies interact within the individual SACU countries as well as between South Africa and the other SACU countries.