Monetary policy shocks and economic growth in economic community of west African states.
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Date
2022
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Abstract
An effective economic management is contingent upon the knowledge of how shocks emanate
from monetary policy and other sources that affect the economy. This study examines the
monetary policy shocks and economic growth in the Economic Community of West African
States (ECOWAS), segregated into sub-regions of WAMZ and WAEMU. This is carried out
under three related sub-objectives, using quarterly secondary data from 1980(1) to 2020(4).
The first objective offers an empirical investigation into the determinants of the monetary
policy rate in ECOWAS, considering both internal and external variables, using ARDL. The
results revealed that in order to ensure long-run stability in the policy rate among the members’
states of ECOWAS, determinant variables including exchange rate, inflation rate and the gross
domestic product should be given closer attention, so that the trajectory for potent structure can
be designed and incorporated into the economic structure and policy frameworks accordingly.
The second objective of this study employed a Panel Structural Vector for the modelling of
monetary policy transmission shock in the region. The key results suggest that fluctuations of
the monetary policy do not have significant effects on economic growth but significantly
impact the general price level. Moreover, the study finds that the exchange rate is persistently
a vital mechanism that significantly influences the variables of the real economy. Our estimates
further suggest that there is idiosyncratic evidence found in the results, which is the anomaly
of Price puzzle. Furthermore, this study used the Markov switching model for the third objective to investigate
the impact of monetary policy shocks in two regimes of the business cycles in ECOWAS
countries. The results show that the countries are having common business cycles. In addition,
the study offered enough evidence that the monetary instruments are significantly more potent
at contractionary than expansionary regimes. ECOWAS region appears to have a
comparatively shorter business cycle than the developed countries. Hence, the design of
policies by the monetary authorities in this region, aimed at shortening the duration of the
contractionary period must be meticulously formulated to avert negative consequences of strict
contractionary policy and ditto to expansionary policy.
Description
Doctoral Degree. University of KwaZulu-Natal, Durban.