IDEAS home Printed from https://ideas.repec.org/a/eme/jespps/jes-03-2022-0154.html
   My bibliography  Save this article

Financial stability and monetary policy of the Central Bank of West African Countries: a Markov-Switching model

Author

Listed:
  • Honoré Sèwanoundé Houngbédji
  • Nassibou Bassongui

Abstract

Purpose - This paper aims to examine the response of monetary policy to financial instability in the West African Economic and Monetary Union. Design/methodology/approach - Through annual aggregated data from 1970 to 2019, the empirical strategy is based on the Markov regime-switching model with fixed probabilities. Findings - The results revealed that the monetary policy of the central bank of the West African Economic and Monetary Union is characterized by two regimes (calm and distress) with respect to the trend of financial stability. The authors also found that the occurrence of the calm regime was likely greater than that of the distress regime. In addition, the calm regime is longer than the distress regime. The authors finally revealed that the central bank reacts to financial instability risk by increasing its short-term interest rate when financial instability reaches a threshold. Research limitations/implications - The limitation of this study is the unavailability of monthly or quarterly data that are more suitable for the methodological approach adopted. Originality/value - This study is the one to estimate the response of the Central Bank of West African Countries to financial stress using a novel approach based on the Markov-Switching regression.

Suggested Citation

  • Honoré Sèwanoundé Houngbédji & Nassibou Bassongui, 2022. "Financial stability and monetary policy of the Central Bank of West African Countries: a Markov-Switching model," Journal of Economic Studies, Emerald Group Publishing Limited, vol. 50(3), pages 525-543, April.
    • Handle: RePEc:eme:jespps:jes-03-2022-0154
    DOI: 10.1108/JES-03-2022-0154
    as

    Download full text from publisher

    File URL: https://www.emerald.com/insight/content/doi/10.1108/JES-03-2022-0154/full/html?utm_source=repec&utm_medium=feed&utm_campaign=repec
    Download Restriction: Access to full text is restricted to subscribers
    File URL: https://www.emerald.com/insight/content/doi/10.1108/JES-03-2022-0154/full/pdf?utm_source=repec&utm_medium=feed&utm_campaign=repec
    Download Restriction: Access to full text is restricted to subscribers
    File URL: https://libkey.io/10.1108/JES-03-2022-0154?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Honoré Sèwanoudé HOUNGBEDJI, 2022. "Non linéarité de la fonction de réaction de la Banque centrale des Etats de l’Afrique de l’Ouest," Region et Developpement, Region et Developpement, LEAD, Universite du Sud - Toulon Var, vol. 56, pages 133-157.

    More about this item

    Keywords

    Financial stability; Monetary policy; Markov regime switching model; C32; E52; E58;
    All these keywords.

    JEL classification:

    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:eme:jespps:jes-03-2022-0154. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no bibliographic references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Emerald Support (email available below). General contact details of provider: .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.