The Dynamics of Monetary Policy and Output Growth in Economic Community of West African States (ECOWAS)

Abstract

This study examined the dynamics of monetary policy and output growth in Economic Community of West African States between 1980(Q1) and 2019(Q4). The study used time series data spanning from 1980 (Q1) to 2019 (Q4). Data for this study was sourced from World Bank database and International Monetary Fund database. This study made use of panel co-integration ARDL approach and panel vector autoregressive model as estimation techniques. The results of the pooled data for ECOWAS countries confirmed that all the variables of interest were stationary after the first difference i.e. they were integrated of order I(1). Findings from the study revealed that there is a long-run relationship between output growth and monetary policy variables both in Anglophone and Francophone ECOWAS countries. westerlund panel co-integration test was also used to examine the determinants of output growth in ECOWAS countries. The results of both long-run model and short-run model of the ARDL regression estimate showed that interest rate, money supply growth rate, consumer expenditure, gross capital formation and government expenditure were significant determinants of output growth in ECOWAS Countries. Exchange rate, net exports and human capital were insignificant determinants of output growth in ECOWAS countries during the study period. In addition, it was equally revealed that exchangerate has a negative and significant impact on output growth in Anglophone ECOWAS countries while on the contrary; exchange rate has a positive and significant impact on output growth in Francophone ECOWAS countries. Based on these findings, the study therefore recommends that ECOWAS countries should implement economic policies aimed at improving human capital, favorable terms of trade and work towards achieving an appropriate exchange rate as this will help to stimulate andimprove output growth in ECOWAS countries.