Unconventional monetary policy and its implications for employment and economic growth in the WAEMU

This thesis aims to simulate the impact of non-conventional monetary policy instruments on employment and economic growth in the West African Economic and Monetary Union (WAEMU).

Until 2008, before the financial and economic crisis, the traditional or conventional monetary policy was the most applied. But in the aftermath of the crisis, the need to use new instruments to revive the economy led to the adoption of unconventional monetary policy by the US Federal Bank. For Pfister and Valla (2015), unconventional measures are implemented “in deflationary, low-growth and credit crunch environments”. Monetary policy can take three forms: quantitative easing, credit easing and negative interest rates. Quantitative easing allows central banks to buy long-term debt securities of various kinds on the financial markets, thus increasing their liabilities. Central banks will favour this easing in order to increase the money supply and allow a better allocation of cash within the financial market (Galiana, 2015). The central bank’s purchases of securities will reduce their supply and encourage players to invest in different asset portfolios (Pfister, Valla, 2015). This incentive to invest will reduce savings in favour of investment, leading to an increase in real asset prices, the revival of credit and consequently a rebound in aggregate demand in the economy. Qualitative easing consists of improving liquidity in the market by facilitating the financing of financial institutions by the central bank through the expansion of assets eligible as collateral, which may be less liquid and more risky. Finally, the third unconventional weapon is the application of negative interest rates. The objective of introducing negative interest rates is to facilitate access to credit and increase investment in the economy.

Several empirical studies show the positive impact of these unconventional monetary policy instruments on aggregate output in the European, US and Japanese context (Hohberger, Priftis and Vogel, 2018; Koeda, 2018; Matousek et al., 2019; Kapoor and Peia, 2020) and this thesis asks about their implications in the WAEMU.

Thus, the general objective is to analyse the implications of the introduction of unconventional monetary policy measures on the economy of WAEMU countries.

Specifically, the aim is to :

. analyse the effectiveness of conventional monetary policy in the WAEMU region
. simulate the impacts and effectiveness of adopting a non-conventional monetary policy on the economies of the WAEMU region
. Make a comparative analysis of the effectiveness of conventional and unconventional monetary policy in the WAEMU region.