Effectiveness of monetary policy in West Africa Monetary Zone

Abstract

One of the important primary macroeconomic convergence criteria of the West African Monetary Zone (WAMZ) is the attainment of single-digit inflation. Available data show that but for The Gambia, none of the member states has achieved this objective on sustained basis. This raises concerns about the effectiveness of monetary policy transmission mechanism in controlling inflation in the Zone. This thesis addressed three policy relevant issues: (1) investigated the effectiveness of monetary policy transmission mechanisms, (2) explored the opinions of experts on the conduct of monetary policy in Ghana, and (3) assessed the role of fiscal dominance in constraining the conduct of monetary policy. The thesis employed the mixed method. The results showed that the channels of monetary policy transmission differ across the WAMZ member states. While the interest rate channel remains ineffective for the various WAMZ countries, the bank lending channel was only effective in Ghana and The Gambia. Also, the results of the study found evidence of exchange rate channel in Nigeria. On the other hand, the qualitative study on Ghana revealed that the independent status of the CB has enhanced the conduct of monetary policy in achieving price stability. Finally, the results showed that fiscal dominance complements the inflationary effect of money supply. The study recommended that various CBs in the WAMZ countries should deepen their financial markets in order to boost financial intermediation with the view to improving monetary policy transmission in achieving price stability in the Zone.