Monetary Policy Transmission Mechanism and Economic Growth in the West African Monetary Zone, 2000-2025

Abstract

This study investigated the effect of the monetary policy transmission mechanism on economic growth in the West African Monetary Zone (WAMZ), with emphasis on Nigeria and Ghana, covering the period from 2000 to 2025. The study was motivated by the persistent macroeconomic challenges confronting the WAMZ despite the implementation of various monetary policy measures aimed at achieving price stability, exchange rate stability, financial sector development, and sustainable economic growth. Specifically, the study examined the effects of Monetary Policy Rate (MPR), Broad Money Supply (M2), and Bank Branches as a control variable on Gross Domestic Product (GDP). Annual panel data were obtained from the World Development Indicators (World Bank). The study adopted an ex-post facto research design and employed Levin-Lin-Chu panel unit root test, Pedroni residual panel co-integration test, and the Panel Autoregressive Distributed Lag (ARDL) estimation technique to analyze both the short-run and long-run relationships among the variables. The Panel ARDL estimates showed that Broad Money Supply, exert significant negative effects on economic growth in the long run. Specifically, Broad Money Supply recorded a coefficient of −0.295721 (p = 0.0083), Conversely, Monetary Policy Rate recorded a positive but statistically insignificant coefficient of 0.067416 (p = 0.7789). The study concludes that monetary policy transmission in the West African Monetary Zone is driven primarily through monetary stability control rather than through the conventional interest rate and credit channels. The findings imply that excessive monetary expansion, undermine sustainable economic growth within the region. Accordingly, the study recommends that monetary authorities pursue prudent money supply management, strengthen inflation-targeting frameworks, toward productive sectors of the economy. The study contributes to the literature by providing updated comparative panel evidence on the effectiveness of multiple monetary policy transmission channels in Nigeria and Ghana over the period 2000–2025, thereby offering useful policy insights for the proposed monetary integration of the West African Monetary Zone.