Financial Development and Monetary Policy in Sub-Saharan Africa. Dynamic Panel Analysis
Financial Development and Monetary Policy in Sub-Saharan Africa. Dynamic Panel Analysis

Summary/Abstract: After the catastrophic consequences of the global financial crisis on the financial market, the effectiveness of the monetary policy in curbing price volatility and ensuring financial stability is in question. Therefore, the paper examines the impact of financial development on monetary policy in Sub-Saharan Africa (SSA). Unlike the previous studies, we attempt to capture financial reforms in different African countries from 1970 to 2016, including the banking crisis period. Using dynamic panel data analysis, our results show that there is a negative correlation between financial development and the monetary policy (lending interest rate used as a proxy) in SSA. As the financial sector develops, there is less distortion in the financial market, which leads to a decrease in the lending rate. This result applies irrespective of whether domestic credit to the private sector or money supply was employed as a proxy for measuring financial development.

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