Assessing the effect of monetary policy on economic growth in franc zone

This study aims at assessing the effect of monetary policy on economic growth for the fourteen countries of the Franc zone over the period 1985-2012 using a dynamic panel model. The system estimator of the generalized method of moments has allowed us to demonstrate a significant and negative effect of domestic credit provided by banking sector on economic growth. The analysis reveals that money supply has significant positive effect on economic growth, while total reserves and inflation have a negative effect. However the negative effect of domestic credit provided by banking sector can be reversed through allocation of funds to those projects for which the social returns are the highest and through allocation of funds to productive local industries.