Monetary policy channels, sectoral outputs and sustainable growth in the ECOWAS region: a rigorous analysis and implications for policy

Abstract

PurposeThe market-based monetary policy framework has been favoured by Economic Community of West African States (ECOWAS) economies. Hence, this study aims to investigate the effect of monetary policy channels on the sectoral value added and sustainable economic growth in ECOWAS. Data from the World Bank and International Monetary Fund over 2013–2019 were sourced for thirteen member countries. ECOWAS is found to have very high inflation level, interest and exchange rates.Design/methodology/approachThe study adopted the Driscoll–Kraay fixed-effects ordinary least squares regression (OLS) estimator.FindingsThe findings revealed that while the effect of monetary policy channels on the agricultural sector value added is largely heterogenous and significantly in-elastic, the one on the industrial and services sectors are overwhelmingly homogeneous and negative, but insignificant for the services sector. Moreover, the effect of monetary policy channels on sustainable economic growth is also homogeneously asymmetric, with imminent stagflation, while the interactive effects of monetary policy channels are heterogeneous on sustainable economic growth and economic sectors. Therefore, an inflation targeting monetary policy stance is generally recommended with prioritised exchange rate stabilisation amid sufficient fiscal space.Originality/valueThis is amongst the first studies to investigate monetary policy channels, sectoral outputs and sustainable growth in the ECOWAS region with a rigorous analysis and found implications for policy.