Monetary Policy And Economic Growth In CEMAC Countries

The aim of this thesis is to analyse the effect of monetary policy in economic activity.It uses data from World Bank data base and covers the period from 1972 to 2014 on six countries of CEMAC region.The monetary authority in charge of monetary policy in the region is BEAC,the central bank of the region.The primary function of central bank is to control the money supply through the management of instruments such as interest rates,reserves requirements,and acting as a lender of last resort to the banking sector.The financial crises and the subprime crises in the US economy has much more revealed this goal of central bank where it has been more active.In fact we can mention the fact that the Fed has implemented negative interest rate in order to stimulate economy.Central banks usually have also supervisory power intended to prevent bank runs and to reduce the risk that commercial banks and other financial institutions engage in reckless or fraudulent behaviour.Central banks in most developed nations are institutionally designed to be independent from political interference.In less developed countries where corruption is high,the situation is usually different.However,in these countries where the economies struggle with poverty,this tool requires a careful management due to its role played in inflation.In fact,in the countries where purchasing power is already low,high inflation may have more disastrous effects.In the situation of pegged currency as in the case of CEMAC countries,the primary goal of BEAC is to maintain the fixe parity of the currency.BEAC has also stated as intermediate goal to act as an agent of economic growth.By stated this goal,it chooses to use monetary policy,its tools and instrument in order to stimulate economy and achieve alternatively the other goals attributed to Central Bank.This study focuses in the empirical analysis of the effect of monetary policy on economic activity,specifically on the effect of money supply.To achieve this goal we use a panel data sample and our results were based on GMM model.Our model was inspired from the Saint Louis equation and from equation of exchange as stated by Fisher M.V=P.Y.We use variables related to monetary policy such as money supply(M2),discount interest rate and inflation.In addition,as stated by equations of Saint-Louis we used other variables that played an important role in growth such us investment,credit,and export.We use per capita GDP as a measure of economic activity which is also used by the World Bank as an index of economic development.Results found reveal that money supply(M2)has a negative and significant impact on economic activity.We also found that interest rate and inflation affect respectively positively and negatively economic activity but these effects are not significant.We conclude that monetary policy in CEMAC member states does not contribute to economic growth.Its policy is more contractionary and also tight at some level.Since it plays a positive role and cut up inflation which requires a tight or contractionary monetary policy.This study contributes to the previous study in monetary theory and in the effect of monetary policy.We used per capita GDP as a measure of economic activity instead of nominal or real GDP and GDP growth as used by the previous researches.