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Monetary Policy in the Franc Zone: Estimating Interest Rate Rules for the BCEAO

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  • Anja Shortland
  • David Stasavage

Abstract

This paper examines to what extent the central bank for the West African Economic and Monetary Union (BCEAO) has used interest rate policy in response to domestic economic developments. We show that while in the long run the BCEAO matches changes in French (Eurozone) interest rates one for one, in the short run it retains freedom to react to domestic economic variables, such as inflation, the output gap, its foreign exchange position and government borrowing.

Suggested Citation

  • Anja Shortland & David Stasavage, 2004. "Monetary Policy in the Franc Zone: Estimating Interest Rate Rules for the BCEAO," WIDER Working Paper Series RP2004-20, World Institute for Development Economic Research (UNU-WIDER).
    • Handle: RePEc:unu:wpaper:rp2004-20
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    File URL: https://www.wider.unu.edu/sites/default/files/rp2004-020.pdf
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    References listed on IDEAS

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    1. Clarida, Richard & Gali, Jordi & Gertler, Mark, 1998. "Monetary policy rules in practice Some international evidence," European Economic Review, Elsevier, vol. 42(6), pages 1033-1067, June.
    2. International Monetary Fund, 2001. "West African Economic and Monetary Union (WAEMU): Recent Economic Developments and Regional Policy Issues in 2000," IMF Staff Country Reports 2001/193, International Monetary Fund.
    3. Elliott, Graham & Rothenberg, Thomas J & Stock, James H, 1996. "Efficient Tests for an Autoregressive Unit Root," Econometrica, Econometric Society, vol. 64(4), pages 813-836, July.
    4. Anja Shortland & David Stasavage, 2004. "Monetary Policy in the CFA Zone: Country-level Credit Policy," WIDER Working Paper Series RP2004-15, World Institute for Development Economic Research (UNU-WIDER).
    5. Honohan, Patrick, 1990. "Monetary cooperation in the CFA zone," Policy Research Working Paper Series 389, The World Bank.
    6. Savvides, Andreas, 1998. "Inflation and monetary policy in selected West and Central African countries," World Development, Elsevier, vol. 26(5), pages 809-827, May.
    7. Janine Aron & John Muellbauer, 2002. "Estimating Monetary Policy Rules for South Africa," Central Banking, Analysis, and Economic Policies Book Series, in: Norman Loayza & Klaus Schmidt-Hebbel & Norman Loayza (Series Editor) & Klaus Schmidt-Hebbel (Series (ed.),Monetary Policy: Rules and Transmission Mechanisms, edition 1, volume 4, chapter 15, pages 427-476, Central Bank of Chile.
    8. Engle, Robert & Granger, Clive, 2015. "Co-integration and error correction: Representation, estimation, and testing," Applied Econometrics, Russian Presidential Academy of National Economy and Public Administration (RANEPA), vol. 39(3), pages 106-135.
    9. Newey, Whitney & West, Kenneth, 2014. "A simple, positive semi-definite, heteroscedasticity and autocorrelation consistent covariance matrix," Applied Econometrics, Russian Presidential Academy of National Economy and Public Administration (RANEPA), vol. 33(1), pages 125-132.
    10. Taylor, John B., 1993. "Discretion versus policy rules in practice," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 39(1), pages 195-214, December.
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    Cited by:

    1. Kuikeu, Oscar, 2011. "Comment la dernière crise financière a relancé le débat relatif à l'arrimage du fcfa à l'euro [How the recent financial crisis have revived the debate on the parity between fcfa and euro]," MPRA Paper 32077, University Library of Munich, Germany.
    2. Kuikeu, Oscar, 2011. "Arguments contre la zone franc [Against the cfa franc zone]," MPRA Paper 33710, University Library of Munich, Germany.
    3. Sessinou Erick Abel Dedehouanou & Abou Kane, 2023. "Macroeconomic challenges of scaling up aid to West African Economic and Monetary Union," South African Journal of Economics, Economic Society of South Africa, vol. 91(3), pages 330-350, September.

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