The Short and Long Run Dynamics of Monetary Policy, Oil Price Volatility and Economic Growth in the CEMAC Region

Abstract

The effects of shocks on oil prices will always attract the interest of researchers and policy makers as long as such countries are oil revenue dependent. This is the case in the Central African Economic and Monetary Community (CEMAC) where 70% of the regional countries are net oil income earners. In this study, an in-depth investigation was carried out on the short and long run dynamics between monetary policy, oil price volatility and economic growth in the oil producing CEMAC countries. The target countries are Cameroon, Chad, the Democratic Republic of Congo, Equatorial Guinea, Gabon and the Republic of Congo, and the data for the study covered 1980-2018, a period of 38 years. The study employed the panel autoregressive distributed lag model for the short- and long-run dynamics, while a structural vector autoregressive (SVAR) model was employed for shocks and spillover effects. The results identified oil price volatility, GDP growth rate and exchange rate as highly influential variables in the long run, while exchange rate and GDP growth rate only have significant short run influences on monetary policy rates in the region. The countries of the region need to intensify efforts towards the diversification of individual economic base, reduce the importation of foreign goods and formulate monetary policies that will strengthen their currencies and boost the growth potential in the communities.