Internationale Zeitschrift für Wirtschafts- und Managementwissenschaften

Is the Monetary Policy of the WAEMU Credible? An Empirical Analysis Based on the Rule Forward Looking

Abstract

Nahoussé Diabate

This study aims at making available to the Central Bank of West African States (BCEAO) authorities an additional decision tool that would enhance their transparency and credibility. Therefore the Taylor rule, which connects the level of short term interest rates in output gap and the gap between the rate of inflation and the inflation target the mass money was introduced, net foreign assets and a dummy variable to capture the effects of the 1994 devaluation of the generalized method of moments (GMM) particularly suitable in the context of "Forward looking rules" is used here. The results obtained from annual data (1985-2014) shows that the estimated rule does not pretty much describe the behavior of money market rates over the period. Moreover, it seems that Central Bank of West African States (BCEAO) gives more and more weight to support the activity and the stabilization of prices, anything that weakens its effectiveness and credibility. Our results confirm the need for the central bank to return to its policy primarily based on inflation targeting sit for the credibility of its monetary policy.