The BCEAO’s monetary policy faced with the pursuit of two objectives: Inflation targeting and foreign exchange reserves targeting
Fall, Alsim
The BCEAO’s monetary policy faced with the pursuit of two objectives: Inflation targeting and foreign exchange reserves targeting - 2020.
41
Inflation targeting is generally implemented in countries where the exchange rate is freely determined on the currency market. However, the BCEAO applies an inflation targeting policy associated with a hard peg of the nominal exchange rate to the euro. This study questions the relevance of such a strategy using a New Keynesian Quarterly Projection Model (QPM) which integrates a reaction function of the Central Bank based on inflation targeting and foreign exchange reserves targeting. The simulations show that the measures taken by the BCEAO over the last five years are not consistent with the inflation targeting objective due to the rigidity of the nominal exchange rate. Therefore, the monetary policy framework could be strengthened by defining two types of instrument for achieving the respective internal and external targets. JEL Codes: D58, E52, E58.
The BCEAO’s monetary policy faced with the pursuit of two objectives: Inflation targeting and foreign exchange reserves targeting - 2020.
41
Inflation targeting is generally implemented in countries where the exchange rate is freely determined on the currency market. However, the BCEAO applies an inflation targeting policy associated with a hard peg of the nominal exchange rate to the euro. This study questions the relevance of such a strategy using a New Keynesian Quarterly Projection Model (QPM) which integrates a reaction function of the Central Bank based on inflation targeting and foreign exchange reserves targeting. The simulations show that the measures taken by the BCEAO over the last five years are not consistent with the inflation targeting objective due to the rigidity of the nominal exchange rate. Therefore, the monetary policy framework could be strengthened by defining two types of instrument for achieving the respective internal and external targets. JEL Codes: D58, E52, E58.
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