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Can Monetary Policy Influence Employment? The case of West African States

Author

Listed:
  • Alexandre Assemien
  • Loesse J. Esso
  • Kouamé D. Kanga

Abstract

This paper aims at analysing the impact of monetary policy shock on employment in the West African Economic and Monetary Union. We first propose a DSGE model to understand the link between monetary policy and employment. The model incorporates labour market frictions. We find that the effect of monetary policy on employment depends on the labour market characteristics namely the job destruction rate and the bargaining power of firms (or workers). We show that an expansionary monetary policy shock increases employment, stock of capital (investment) and job finding probability. To verify the theoretical results, we estimate a structural panel VAR and find that an expansionary monetary policy shock increases employment as well as stock of capital and households consumption. Moreover, using another structural panel VAR which allows cross-sectional heterogeneity of the response dynamics, we highlight heterogeneous responses of employment and macroeconomic variables to a monetary shock. Classification JEL : C33, C36, E24, E52

Suggested Citation

  • Alexandre Assemien & Loesse J. Esso & Kouamé D. Kanga, 2019. "Can Monetary Policy Influence Employment? The case of West African States," Revue d'économie politique, Dalloz, vol. 129(5), pages 777-813.
    • Handle: RePEc:cai:repdal:redp_295_0777
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    More about this item

    Keywords

    WAEMU; Panel VAR; DSGE; Monetary policy; Employment;
    All these keywords.

    JEL classification:

    • C33 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Models with Panel Data; Spatio-temporal Models
    • C36 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Instrumental Variables (IV) Estimation
    • E24 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy

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