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Monetary policy, threshold of profitability and dynamics of private investment in the West African Economic and Monetary Union

Author

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  • Sodokin, Koffi
  • Kouwonou, Yao
  • Kodjovi Couchoro, Mawuli
  • Amadou, Akilou

Abstract

This study investigates the interactions between optimal monetary policy, investment profitability thresholds, and private sector investment dynamics within the West African Economic and Monetary Union. Analyzing data from 2000 to 2021, it employs advanced econometric models (linear, asymmetric, and threshold effect dynamic panel error correction models) to provide a nuanced understanding of the investment environment in the union. The findings reveal the confluence of low returns and high borrowing costs for private investment. Notably, this study suggests that simply pursuing an expansionary monetary policy does not offer a sufficient solution. Instead, it proposes a more accommodative stance by the Central Bank, featuring lower policy rates, to alleviate the negative impact of high credit costs on private investment and ultimately stimulate economic activity.

Suggested Citation

  • Sodokin, Koffi & Kouwonou, Yao & Kodjovi Couchoro, Mawuli & Amadou, Akilou, 2024. "Monetary policy, threshold of profitability and dynamics of private investment in the West African Economic and Monetary Union," Journal of International Money and Finance, Elsevier, vol. 143(C).
    • Handle: RePEc:eee:jimfin:v:143:y:2024:i:c:s0261560624000676
    DOI: 10.1016/j.jimonfin.2024.103080
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    More about this item

    Keywords

    Monetary Policy; Internal rate of return; Investment; West Africa;
    All these keywords.

    JEL classification:

    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • E22 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Investment; Capital; Intangible Capital; Capacity
    • O55 - Economic Development, Innovation, Technological Change, and Growth - - Economywide Country Studies - - - Africa

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