(African Economic Research Consortium, 2021-11-25) Kanga, Désiré; Kanga, Désiré
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.