Monetary Policy Performance and Economic Growth: An Empirical Evidence for WAMZ Member Countries

Abstract

This study examines the effect of monetary policy on economic growth of West African Monetary Zone (WAMZ) countries from 2002 - 2022. In the model, money supply (M2), interest rate (INTR), and inflation rate (INFR) are considered the independent variable while real gross domestic product (RGDP) is given as the dependent variable. This study used Ordinary Least Square (OLS) and Panel regression analysis, and finding indicate that money supply and interest rate have positive and statistically significant impact on economic growth among WAMZ member countries. The inflation rate has negative and significant impact on GDP. The random effect model on the other hand reveals that money supply is positive and statistically significant on GDP. Similarly, the effect of interest rate is positive but statistically insignificant on economic growth. However, the impact of inflation rate is negative but statistically significant on economic growth of the WAMZ member countries. Therefore, the study recommends the implementation of sound monetary policies such as expansionary Open Market Operation (to increase money supply as increase in money supply increases economic growth), adjust the contractionary discount rate (by reducing the rate of interest rate in order to expand liquidity and investment). The study also recommended that WAMZ country’s banks should be committed to the mission of price stability, as well as improving the regulatory and supervisory framework to secure a strong financial sector for efficient intermediation, economic growth and development.