Money Demand and Regional Monetary Policy in the West African Economic and Monetary Union

April 1, 1998

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

Regional monetary integration, financial liberalization, and the adoption of indirect policy instruments have changed the conditions for monetary policy in the West African Economic and Monetary Union (WAEMU). The stability of money demand has become a crucial element for monetary policy. This paper presents empirical money demand estimations for regional monetary aggregates and analyzes their stability and forecast performance. The estimations result in a stable relationship for narrow money (M1). Consequently, the region’;s central bank, the BCEAO, can continue to conduct monetary policy in line with the fixed exchange rate system if it succeeds in maintaining financial stability.

Subject: Banking, Currencies, Demand for money, Exchange rate adjustments, Foreign exchange, Inflation, Money, National accounts, Personal income, Prices

Keywords: BCEAO, CFA franc, CFA franc zone, Chow test, credit, Currencies, Demand for money, Exchange rate adjustments, Inflation, interest rate, interest rate difference, money demand, money demand equation, money demand estimation, money demand function, money demand specification, narrow money, Personal income, regional money demand, WAEMU, West Africa, WP

Pages:
25
Volume:
1998
DOI:
https://doi.org/10.5089/9781451967623.001
Issue:
057
Series:
Working Paper No. 1998/057
Stock No:
WPIEA0571998
ISBN:
9781451967623
ISSN:
1018-5941

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