How to Improve the Effectiveness of Monetary Policy in the West African Economic and Monetary Union

May 5, 2015

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Format: Chicago

Alexei P Kireyev. How to Improve the Effectiveness of Monetary Policy in the West African Economic and Monetary Union, (USA: International Monetary Fund, 2015) accessed November 8, 2024

Disclaimer: This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate

Summary

The West African Economic and Monetary Union (WAEMU) is a currency union with a fixed exchange rate and limited capital mobility and, therefore, an independent monetary policy in the short run. The Central Bank of West African States (BCEAO) is conducting the single monetary policy with the main goal of preserving price stability and supporting economic growth. However, the effectiveness of its monetary policy remains low, with a weak reaction of market interest rates and inflation to BCEAO’s policy actions. The paper concludes that, while the institutional setup and the instruments of monetary policy are adequate, the transmission mechanism of monetary policy remains constrained by liquidity management practices, shallow and segmented financial markets, and interest rate rigidities. To improve the effectiveness of monetary policy the BCEAO should be more proactive in determining the stance of fiscal policies, develop financial markets, and liberalize controlled interest rates. The BCEAO is undertaking important reforms in these directions.

Subject: Asset and liability management, Banking, Central bank policy rate, Financial services, Inflation, Interbank rates, Liquidity, Monetary policy, Monetary policy instruments, Prices

Keywords: BCEAO banknote, BCEAO refinancing, BCEAO statute, Central bank policy rate, CFA franc, Core inflation, Excess reserves, Exchange rate, Facility rate, Inflation, Influence market interest rates, Injection rate, Interbank rates, Lending rate, Liquidity, Liquidity injection, Liquidity injection rate, Low-income countries, Monetary policy, Monetary policy instruments, Money market, Policy action, Policy rate, WAEMU, West Africa, WP

Publication Details

Pages:

36
Volume:

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DOI:

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Issue:

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Series:

Working Paper No. 2015/099
Stock No:

WPIEA2015099
ISBN:

9781484366646
ISSN:

1018-5941

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