Study Of The Transmission Mechanism Of Monetary Policy In CEMAC

The purpose of this study is to identify the transmission mechanisms of monetary policy in CEMAC,the most effective transmission channel in the area to analyze the effects of monetary policy decisions on economic activity and price over the period 1996-2016.Given that the economies of the member countries of the Central African Economic and Monetary Community(CEMAC)are dependent on oil revenues;we will also analyze the effects of oil price fluctuations in the Central African Economic and Monetary Community(CEMAC).To achieve our objective,we used the PVAR(Panel Vector Auto regression)model estimation on the overall data of the six countries of the Central African Economic and Monetary Community.The shocks identification of the model is inspired by the work of Holtz Eakin(1988),Goodhart and Hofmann(2008),and Zicchino(2006)that allow the analysis of Panel and chronological data.First,our results show that the transmission of monetary policy passes through the channels of the interest rate,the credit,the currency.Taking into account all six CEMAC member countries in a PVAR has shown the weakness of the transmission channels in the CEMAC.TIAO shocks and money supply are negative and have no significant effect on activity and price.More precisely,the interest rate channel is weak in the CEMAC and its impact on the money supply is negative.This weakness is due to the lack of development of public securities markets and the excess liquidity of the Central African Economic and Monetary Community(CEMAC).Secondly,the credit channel seems to be the most operative in the Central African Economic and Monetary Community(CEMAC).Moreover,monetary policy does not have significant effects in the CEMAC and asymmetric effects from one country to another as States react asymmetrically to the common shocks of monetary policy.Third,as oil is a major source of government revenue in CEMAC,the impact of falling oil prices is reflected in the level of oil revenues and they also affect government spending.This has consequences for non-oil economic activity.According to PVAR impulse responses,the oil price shock is positive on the monetary and negative mass on non-oil GDP growth.Thus,the oil price channel has an indirect impact on the economic activity of the Central African Economic and Monetary Community(CEMAC).In other words,the drop in oil prices in 2014 had negative effects in the CEMAC,such as: the decline in foreign exchange reserves,which in turn leads to a contraction of the monetary base,a negative shock on the growth of the CEMAC which is below 0% and a heavy fall in budget revenues that leads to economic crises in the sub-region.Thus,the first two results show the inability of the monetary authorities to influence short-term interest rates and the lack of financial market development.This leads to the limit effects of BEAC's monetary policy on economic activity.Thus,the BEAC should develop,reinvigorate the financial market and finally improve the effectiveness of monetary policy.As for the third result,it particularly calls on the CEMAC member countries to diversify their economies,improve the business climate,fight against bad governance,and CEMAC's structural transformation,and finally reduce the dependency on oil revenues.