Effect of Financial Sector Development on Monetary Stability Objective in CEMAC

Year 2022, Volume: 4 Issue: 1, 11 - 25, 30.06.2022

Emmanuelle Dorcas Mbanga Pagal

https://doi.org/10.54821/uiecd.1094499

Abstract

The paper determines the role played by banking stabilization policies over the relationship between financial sector development and monetary stability objective. Applying generalised method of the moments (GMM) system of Blundell and Bond (1998) over the inflation equation constructed by Gallic and al (2017), we found that undesirable effects of financial sector development (credit risk) increase inflation rate in CEMAC. Besides, the negative relationship between financial sector development and monetary stability objective quoted in the literature is not reversed in CEMAC. The credit risks, the main cause of monetary instability and the main undesirable effects of financial sector development increase the inflation rate in CEMAC. Therefore, policymakers need to curb any increased of credit risks associated with financial sector development as this risk increase inflation in CEMAC.

Keywords

Financial sector development, Monetary stability, Inflation, CEMAC

CEMAC’ta Finansal Sektör Gelişiminin Parasal İstikrar Hedefine Etkisi

Abstract

Araştırma, finansal sektör gelişimi ile parasal istikrar hedefi arasındaki ilişki üzerinde bankacılık istikrar politikalarının oynadığı rolü belirlemektedir. Gallic ve diğerleri (2017) tarafından oluşturulan enflasyon denklemi üzerinde Blundell ve Bond'un (1998) genelleştirilmiş momentler (GMM) sistemini uygulandığı araştırmada finansal sektör gelişiminin (kredi riski) istenmeyen etkilerinin CEMAC'ta enflasyon oranını artırdığını bulunmuştur. Bunun yanı sıra, literatürde alıntılanan finansal sektör gelişimi ile parasal istikrar hedefi arasındaki negatif ilişki CEMAC'ta tersine çevrilmemiştir. Parasal istikrarsızlığın temel nedeni olan kredi riskleri ve finansal sektör gelişiminin başlıca istenmeyen etkileri CEMAC'ta enflasyon oranını yükseltmektedir. Bu nedenle, CEMAC'ta bu risk enflasyonu artırdığından, politika yapıcıların finansal sektör gelişimiyle ilişkili artan kredi risklerini engellemeleri gerekmektedir.

Keywords

Finansal Sektör Gelişimi, Parasal İstikrar, Enflasyon, CEMAC

References

• Aglietta, M., & Scialom, L. (2009). Permanence and innovation in central banking policy for financial stability. In Financial Institutions and Markets (pp. 187-211). Palgrave Macmillan, New York.
• Almarzoqi, R., Naceur, M. S. B., & Kotak, A. (2015). What matters for financial development and stability?. International Monetary Fund.
• Antonin, C., Levasseur, S., & Touzé, V. (2018). L’Union bancaire face au défi des prêts non performants. Revue de l'OFCE, 158(4), 227-252.
• Baltagi, B. H. (2005). Econometric analysis of panel data 3rd Edition England JW &Sons.
• Batayneh, K., Al Salamat, W., & Momani, M. Q. (2021). The impact of inflation on the financial sector development: Empirical evidence from Jordan. Cogent Economics & Finance, 9(1),1970869.
• Bikai, J. L., Essiane, P. N., & Bayesian Structural, V. A. R. (2017). Politique monétaire, stabilité monétaire et croissance économique dans la CEMAC: Une approche SVAR bayésienne (No. 08/17). BEAC Working Paper-BWP.
• Boissay, F., Collard, F., Galí, J., & Manea, C. (2021). Monetary policy and endogenous financial crises (No. w29602). National Bureau of Economic Research.
• Buch, C. M., & Goldberg, L. (2016). Cross-border prudential policy spillovers: How much? How important? Evidence from the international banking research network (No. w22874). National Bureau of Economic Research.
• Cecchetti, S. (2000). Making monetary policy: Objectives and rules. Oxford Review of Economic Policy, 16(4), 43-59.
• Cecchetti, S. G., & Krause, S. (2001). Financial structure, macroeconomic stability and monetary policy. NBER Working Paper No. 8354.
• Creel, J., Hubert, P., & Labondance, F. (2015). Financial stability and economic performance. Economic Modelling, 48, 25-40.
• Criste, A., & Lupu, I. (2014). The central bank policy between the price stability objective and promoting financial stability. Procedia Economics and Finance, 8, 219-225.
• Davoodi, M. H. R., Dixit, M. S., & Pinter, G. (2013). Monetary transmission mechanism in the East African Community: An empirical investigation. International Monetary Fund.
• Dewatripont, M., & Freixas, X. (2012). The Crisis Aftermath: New Regulatory Paradigms. 2012. CEPR book.
• Effiong, E. L., Esu, G. E., & Chuku, C. (2020). Financial development and monetary policy effectiveness in Africa. Journal of Social and Economic Development, 22(1), 160-181.
• Fofack, H., & Fofack, H. L. (2005). Nonperforming loans in Sub-Saharan Africa: causal analysis and macroeconomic implications (Vol. 3769). World Bank Publications.
• Foglia, M. (2022). Non-Performing Loans and Macroeconomics Factors: The Italian Case. Risks, 10(1), 21.
• Gaffard, J. L., & Napoletano, M. (2018). Hétérogénéité des agents, interconnexions financières et politique monétaire: une approche non conventionnelle. Revue francaise d'economie, 33(3), 201-231.
• Gallic, E., Poutineau, J. C., & Vermandel, G. (2017). L’impact de la crise financière sur la performance de la politique monétaire conventionnelle de la zone euro. Revue économique, 68(HS1), 63-86.
• Gauvin, M. S. (2013). Politique monétaire et secteur bancaire: instabilité financière et mise en évidence de nouveaux canaux de transmission (Doctoral dissertation, Université de Toulon).
• Issing, O. (2003). Monetary and financial stability: is there a trade-off?. BIS Papers, 18, 16-23.
• Keho, Y. (2009). Inflation and financial development: Cointegration and causality analysis for the UEMOA countries. International Research Journal of Finance and Economics, 27(10), 117-123.
• Kim, D. H., & Lin, S. C. (2010). Dynamic relationship between inflation and financial development. Macroeconomic Dynamics, 14(3), 343-364.
• Kindleberger, C. P. (2000). Manias, panics, and crashes: a history of financial crises. The Scriblerian and the Kit-Cats, 32(2), 379.
• Kobou, G., & Ayuk, E. T. (2016). Les perspectives de la réglementation et de la supervision des institutions de microfinance en Afrique centrale. enAfrique centrale, 137.
• Korinek, A., & Sandri, D. (2015). Capital controls or macroprudential regulation? (No. w20805). National Bureau of Economic Research.
• Krause, S., & Rioja, F. (2006). Financial development and monetary policy efficiency. Emory Economics, 613(158), 100-121.
• Minegishi, M., & Cournede, B. (2010). Monetary policy responses to the crisis and exit strategies. OECD Working Papers No. 753, Economics Department.
• Mishkin, F. S. (1996). The channels of monetary transmission: Lessons for monetary policy. NBER Working Paper No. 5464.
• Mishkin, F. S. (2009). Is monetary policy effective during financial crises?. American Economic Review, 99(2), 573-77.
• Nyanda, P. G. N. (2021). Déterminants et effets économiques de l’inflation dans la CEMAC. Journal of Academic Finance, 12(1), 187-204.
• Rieu-Foucault, A. M. (2018). Politique monétaire et stabilité financière (No. 2018-13). University of Paris Nanterre, EconomiX.
• Rousseau, P. L., & Wachtel, P. (2002). Inflation thresholds and the finance–growth nexus. Journal of international money and finance, 21(6), 777-793.
• Scialom, L. (2013). Économie bancaire: La meilleure synthése actuelle sur l'économie bancaire. la Découverte.
• Shrestha, P. K., & Semmler, W. (2015). Monetary policy and international reserves in emerging economies: theory and empirics. In Emerging Markets and Sovereign Risk (pp. 213-230). Palgrave Macmillan, London.
• Spyromitros, E., & Tsintzos, P. (2019). Credit expansion in a monetary policy game: Implications of the valuation haircut framework. Finance Research Letters, 28, 125-129.
• Stiglitz, J. E. (2013). Stable Growth in an Era of Crises: Learning from Economic Theory and History. Ekonomi-tek, 2(1), 1-39.