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.
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