The purpose of this paper has been to investigate the monetary policy in the West African Economic and Monetary Union (WAEMU), in terms of a Taylor rule based approach to their use of their interest rate. The evaluation of the different rules was based on both in-sample and out-of-sample forecast errors. Few significant or consistent influences from the variables proposed by the rules can be established, which might suggest that the bank operates primarily under a discretionary framework rather than a rule. Furthermore, our findings indicate that the European Central Bank interest rate (ECB-rate) does not exclusively drive the Central Bank of West African States interest rate (BCEAO-rate), which suggests that they indeed do retain some independence of monetary policy to respond to domestic variables as proposed by earlier research, despite having a fixed exchange rate. These results put into question the credibility of the BCEAO in attaining their stated primary goal of price stability, as there seems to be no significant or consistent response to it in the setting of their interest rate, despite a suggested ability to react to it. This can be the cause of the current high volatility of inflation in the area and give rise to future volatility and instability as well.
| Identifer | oai:union.ndltd.org:UPSALLA1/oai:DiVA.org:hj-44368 |
| Date | January 2019 |
| Creators | Nicklasson, Henric, Ekström, Måns |
| Publisher | Högskolan i Jönköping, Internationella Handelshögskolan, Högskolan i Jönköping, Internationella Handelshögskolan |
| Source Sets | DiVA Archive at Upsalla University |
| Language | English |
| Detected Language | English |
| Type | Student thesis, info:eu-repo/semantics/bachelorThesis, text |
| Format | application/pdf |
| Rights | info:eu-repo/semantics/openAccess |
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