Banks and Monetary Policy Transmission in the West African Economic and Monetary Union
Date
2020-07-03
Authors
Kanga, Désiré
Journal Title
Journal ISSN
Volume Title
Publisher
African Economic Research consortium
Abstract
This paper aims at examining the role of banks in the transmission of the
monetary policy in the West African Economic and Monetary Union (WAEMU).
By using a simple theoretical model, this paper shows that improving the quality
of institutions and an increase in competition strengthens the transmission of
monetary policy while capital requirement behaves like an additional cost to
the borrowers. Applying a dynamic panel estimator to a large sample of WAEMU
banks, the paper finds that bank lending is sensitive to monetary policy and
capital-constrained banks reduce further their lending following a tight monetary
policy compared to less capital-constrained banks. Moreover, an improvement
in the quality of institutions seems to strengthen the transmission of monetary policy.
Keywords: Capital regulation; Quality of institutions; Monetary policy.