Monetary transmission in the West-African monetary union

This report investigates monetary transmission in a monetary union of developing countries (West-African monetary union or Communauté Financière Africaine, CFA). This requires existing monetary transmission models to be adapted. Three econometric methods are applied to assess the impact of expected inflation, real exchange rate, money supply, and domestic credit on economic activity in five out of eight CFA-countries. Money supply and interest rate do not appear to affect GNP. This could have several reasons, like the dual financial system, with an informal, non-monetised share in the economy. Additionally, less developed financial markets and government influence on interest rates are important.