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Estimation of the Impact of Monetary Policy on Economic Growth: The Case of Cote d Ivoire in Line with SVAR Methodology

Drama Bedi Guy Herve

Applied Economics and Finance, 2017, vol. 4, issue 4, 66-83

Abstract: This paper examines and foresees the impacts of monetary policy on economic growth by studying the case of Cote d¡¯Ivoire through the SVAR model. More specifically, the second target is to analyze which policy is reliable for the explanation of real activities fluctuation in Cote d¡¯Ivoire. Thus, we will use eight structural variable SVAR tools by using monthly time data series running from 1990:1 to 2014:12. This SVAR model is also carried out to generate impulse response function that raises the impact of economic policy shocks on growth in Cote d¡¯Ivoire. In addition, from the estimated SVAR equation, we passed through the estimated structural imposition of restrictions and we generated the forecast error variance decomposition analyses that help us make prediction. Our empirical results demonstrate that innovations in monetary aggregate impact in real activities and prices although very low. This implies that monetary policy shocks are not the main determinant of business cycle movements in Cote d¡¯Ivoire. Second, the empirical analysis also shows that the real interest rate and money aggregate significantly respond to variations in the industrial production index while other variables respond insignificantly. This means that the industrial sector in Cote d¡¯Ivoire is constrained by the higher credit cost in their production process. Finally, since global oil price shock captured real activities and impacted negatively output growth, we recommend a gradual diversification of the domestic economy and optimal fiscal policy that could be reliable because it plays a dominant role.

Keywords: output growth; monetary policy; SAR model; Cote d Ivoire (search for similar items in EconPapers)
JEL-codes: R00 Z0 (search for similar items in EconPapers)
Date: 2017
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Handle: RePEc:rfa:aefjnl:v:4:y:2017:i:4:p:66-83