Journal des affaires et de l'économie

Does Financial Development Spur Macroeconomic Policy Efficiency in the Cemac Countries? An Empirical Evaluation

Abstract

Samba MC and Mbassi C

The main intent of this paper is to determine the extent to which financial development has contributed to the efficiency of macroeconomic policy, better represented by monetary policy, in the CEMAC area in the period spanning from 1986 to 2009. For this purpose, we use a methodology provided by Krause and Rioja (2006). These authors develop a methodology in which they derive policy efficiency measures and then assess how these measures are influenced by useful indicators of financial development. Our results show that the efficiency of the BEAC monetary policy is mixed among the CEMAC countries. While policy efficiency has improved in some countries, it has rather stagnated or declined in others. On the other hand, of the three measures of financial development used, only the measure for financial deepening is positively related to monetary policy efficiency. Our main indicator of financial development namely, domestic credit by banks to private sector as a percentage of GDP has any impact on the efficiency of monetary policy in the CEMAC area. Moreover, while the peg of the CFA Franc to the euro appears to have enhanced policy efficiency, the devaluation of the same currency rather impeded monetary efficiency in the CEMAC area.