Effect of Monetary Policies on Economic Performance of Anglophone ECOWAS
Keywords:
contractionary monetary policy, expansionary monetary policy, PNARDL, ECOWAS, Economic Performance Index
Abstract
Although there have been efforts to advance the ECOWAS monetary cooperation agenda, political issues, and other economic concerns in some of the region's nations have hampered the progress to date. Part of the disagreement is associated with inadequate literature that lends experimental proof to monetary policy management for optimal gains. Therefore, this study seeks to examine the relationship between monetary policy strategies and economic performance in Anglophone ECOWAS. The study employed an ex-post facto research design. Secondary annual panel data from 1986 to 2020 for all the five (5) Anglophone ECOWAS were used for this study and sourced from World Development Indicators of the World Bank. The data were analysed using Panel Nonlinear Autoregressive Distributed Lag (PNARDL) to explain the relationship and establish the effect of expansionary and contractionary monetary policies on economic performance. The monetary policies model estimated using the PNARDL revealed that the long-run estimated coefficients of the proxy for contractionary and expansionary monetary policy (decrease and increase in the money supply) are both positive and statistically significant. However, the short-run estimates revealed that both have a negative effect on economic performance. Monetary authorities in the Anglophone ECOWAS could consider implementing regulations and controls on expansionary monetary policy to stimulate economic performance. The research is limited to Anglophone ECOWAS. It appears that no ECOWAS country-specific or cross-country study has investigated the asymmetry relationship of the monetary policy-economic performance nexus; this heightened the need to address the blur in the extant literature and clarify the asymmetry relationship between monetary policy and economic performance in ECOWAS Anglophone.
References
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Nkoro, E.(2005). The study of monetary policy and macroeconomic stability in Nigeria: 1980-2000. University of Benin. Benin City
Okwo, M.I., & Eze, F., & Nwoha, C.(2012). Evaluation of monetary policy outcomes and its effect on price stability in Nigeria. Research Journal of Finance and Accounting, 3(11), 37-47.
Pesaran, M. H., Shin, Y., & Smith, R. P. (1999). Pooled mean group estimation of dynamic heterogeneous panels. Journal of the American statistical Association, 94(446), 621-634.
Pesaran, H.M., Shin, Y., & Smith, R.J. (2001). Bound testing approaches to the analysis of level relationships. Journal of Applied Econometrics, 16, 289-326.
Rafiq, M. S., & Mallick, S. K. (2008). The effect of monetary policy on output in EMU3. A sign restriction approach. Journal of Macroeconomics, 30(4), 1756–1791. https://doi.org/10.1016/j.jmacro.2007.12.003
Salisu, M.S. (1993). An empirical analysis of the demand for money in Nigerian economy (1960-1986); M.Sc Research Paper Presented to the Department of Economics, Ahmadu Bello University, Zaria
Sanya, O., & Tosin, F. O. (2022). The dynamics of monetary policy and output growth in Economic Community of West African States (ECOWAS). Iranian Economic Review, 26(2), 255-268.
Senbet, D. (2011). The relative impact of fiscal versus monetary actions on output: A Vector Autoregressive (VAR) approach. Business and Economics Journal.
Shin, Y., Yu, B., & Greenwood-Nimmo, M. (2014) Modelling asymmetric cointegration and dynamic multipliers in a nonlinear ARDL framework. Springers Science and Business Media, 281-314. https://doi.org/10.1007/978-1-4899-8008-3_9
Shultz, G.P. (2014) The importance of rules-based monetary policy in practice. Journal of Economic Dynamics and Control. 49(2014), 142-143. http://dx.doi.org/10.1016/j.jedc.2014.09.012
Sousa, J. M., & Zaghini, A. (2007). Global monetary policy shocks in the G5: A SVAR approach. Journal of International Financial Markets, Institutions and Money, 17(5), 403–419. https://doi.org/10.1016/j.intfin.2006.03.001
Taylor, A. M. (1996). International capital mobility in history: The saving-investment relationship
Abhoff, S., Belke, S., & Osowski, T. (2021). Unconventional monetary policy and inflation expectations in the Euro Area. Journal of Economic Modelling, 102, 1-15. https://doi.org/10.1016/j.econmod.2021.105564
Adefeso, H., & Mobolaji, H. (2010). The fiscal-monetary policy and economic growth in Nigeria: Further Empirical Evidence. Pakistan Jpournal of Social Sciences, 7(2), 137-142. https://doi.org/10.3923/pjssci.2010.137.142.
Aigheyisi, S.O., & Edore, J.O., (2019). Asymmetric effects of money supply growth on economic growth in Nigeria. Euro Economica, 38(2), 282-295
Ajisafe, R.A., & Folorunsho, B.A. (2002). The relative effectiveness of fiscal and monetary policy in macroeconomic management in Nigeria. The African Economic and Business Review, 3(1).
Amarasekara, C. (2009). The Impact of monetary policy on economic growth and inflation in Sri Lanka. Staff Studies, 38(1), 1. https://doi.org/10.4038/ss.v38i1.1220
Arestis, P., Demetriades, P., Fattouh, B., & Mouratidis, K. (2002). The impact of financial liberalization policies on financial development: Evidence from developing economies. International Journal of Finance and Economics, 7(2), 109–121. https://doi.org/10.1002/ijfe.181
Bahmani-Oskooee, M. (2001). How stable is money demand function in Japan? Japan and the World Economy, 13, 455-461
Bahmani-Osokooee, M., & Bohl, M.T. (2000). German monetary unification and the stability of long-run German money demand function. Economic Letters, 66, 203-208
Barro, R. J., & Gordon, D. B. (1983). Rules, discretion and reputation in a model of monetary policy. Journal of Monetary Economics, 12(1), 101–121. https://doi.org/10.1016/0304-3932(83)90051-X
Canova, F. (2005). The transmission of US shocks to Latin America. Journal of Applied Econometrics, 20(2), 229–251. https://doi.org/10.1002/jae.837
Chen, Q., Filardo, A., He, D., & Zhu, F. (2015). The financial crisis, US conventional monetary policy and international spillovers. Journal of International Money and Finance, 1-40. https://dx.doi.org/doi:10.1016/j.jimonfin.2015.06.011
Chimobi, O., & Uche, U. (2010). Money, price and output. A causality test for Nigeria. American Journal of Scientific Research, 8, 78-87
Croce, E., & Khan, M.S., (2000). Monetary regimes and inflation targeting. Finance and Development, 37(3), 48-51.
Dele, B.E. (2007). Monetary policy and economic performance of West African Monetary Zone Countries. Munich Personal RePEc Archive, 4308
Dotsey, M., & Duarte, M. (2008). Nontraded goods, market segmentation, and exchange rates. Journal of Monetary Economics, 55(6), 1129–1142.
https://doi.org/10.1016/j.jmoneco.2008.07.011
Ebenezer, G.O., & Andrew, M. (2019). Regional effects of monetary policy on economic growth of ECOWAS: An S-Var Approach. The Journal of Developing Areas, 53(1), https://doi.org/10.1353/jda.2019.0012
Folawewo, A., & Osinubi, T. (2006). Monetary Policy and macroeconomic instability in Nigeria: A rational expectation approach. Journal of Social Science. 12(2), 93-100.
Gough, I., Wood, G., Barrientos, A., Bevan, P., Davis, P., & Room, G. (2004). Insecurity and welfare regimes in Asia, Africa and Latin America: Social policy in development contexts. Insecurity and Welfare Regimes in Asia, Africa and Latin America: Social Policy in Development Contexts. https://doi.org/10.1017/CBO9780511720239
Hanisch, M. (2017). The effectiveness of conventional and unconventional monetary policy: Evidence from a structural dynamic factor model for Japan. Journal of International Money and Finance,70(2017), 110-134. http://dx.doi.org/10.1016/j.jimonfin.2016.08.002.
Hayat, Z. (2013). The pros and cons of a discretionary monetary policy strategy: An empirical assessment. SSRN Electronic Journal, 1–35. https://doi.org/10.2139/ssrn.2270210
Hayat, Z., Balli, F., & Rehman, M. (2018). Does inflation bias stabilize real growth? Evidence from Pakistan. Journal of Policy Modeling, Elsevier, 40(6), 1083-1103. http://doi.org/10.1016/j.jpolmod.2018.08.003
Kamaan, C.J., & Nyamongo C.J. (2014). The effect of monetary policy on economic growth in Kenya. International Journal of Business Commerce, 3(8), 11-24
Lashkary, M., & Kashani, B. H. (2011). The impact of monetary variables on economic growth in Iran: A monetarists’ approach. World Applied Sciences Journal, 15(3), 449–456.
McCallum, B. T. (2000). The present and future of monetary policy rules. International Finance, 3(2), 273–286. https://doi.org/10.1111/1468-2362.00052
Meng, X., & Huang, C. (2021). The time frequency analysis of conventional and unconventional monetary policy: Evidence from Japan. Japan and the World Economy, 59(2021), 1-16. https://doi.org/10.1016/j.japwor.2021.101089
Milani, F., & Treadwell, J. (2012). The effects of monetary policy “news” and “surprises”. Journal of money, credit and banking, 44(8), 1667-1692.
Nkoro, E.(2005). The study of monetary policy and macroeconomic stability in Nigeria: 1980-2000. University of Benin. Benin City
Okwo, M.I., & Eze, F., & Nwoha, C.(2012). Evaluation of monetary policy outcomes and its effect on price stability in Nigeria. Research Journal of Finance and Accounting, 3(11), 37-47.
Pesaran, M. H., Shin, Y., & Smith, R. P. (1999). Pooled mean group estimation of dynamic heterogeneous panels. Journal of the American statistical Association, 94(446), 621-634.
Pesaran, H.M., Shin, Y., & Smith, R.J. (2001). Bound testing approaches to the analysis of level relationships. Journal of Applied Econometrics, 16, 289-326.
Rafiq, M. S., & Mallick, S. K. (2008). The effect of monetary policy on output in EMU3. A sign restriction approach. Journal of Macroeconomics, 30(4), 1756–1791. https://doi.org/10.1016/j.jmacro.2007.12.003
Salisu, M.S. (1993). An empirical analysis of the demand for money in Nigerian economy (1960-1986); M.Sc Research Paper Presented to the Department of Economics, Ahmadu Bello University, Zaria
Sanya, O., & Tosin, F. O. (2022). The dynamics of monetary policy and output growth in Economic Community of West African States (ECOWAS). Iranian Economic Review, 26(2), 255-268.
Senbet, D. (2011). The relative impact of fiscal versus monetary actions on output: A Vector Autoregressive (VAR) approach. Business and Economics Journal.
Shin, Y., Yu, B., & Greenwood-Nimmo, M. (2014) Modelling asymmetric cointegration and dynamic multipliers in a nonlinear ARDL framework. Springers Science and Business Media, 281-314. https://doi.org/10.1007/978-1-4899-8008-3_9
Shultz, G.P. (2014) The importance of rules-based monetary policy in practice. Journal of Economic Dynamics and Control. 49(2014), 142-143. http://dx.doi.org/10.1016/j.jedc.2014.09.012
Sousa, J. M., & Zaghini, A. (2007). Global monetary policy shocks in the G5: A SVAR approach. Journal of International Financial Markets, Institutions and Money, 17(5), 403–419. https://doi.org/10.1016/j.intfin.2006.03.001
Taylor, A. M. (1996). International capital mobility in history: The saving-investment relationship
Published
2025-01-25
Section
Articles
