Empirical Performance of Monetary Aggregates in BEAC and BCEAO

Abstract

The aim of this study is to compare empirical performance of traditional as well as Divisiamonetary aggregates. This evidence comes from the comparison of their relative performancein terms of real GDP and inflation within 1992.1 and 2007.4. For this purpose, the study usesin-sample and out-of-sample approaches. The in-sample approach focuses on variancedecomposition analysis. Concerning out-of-sample analysis, a forecasting model is estimatedthrough 2003:4 and forecast are generated for the period 2004:1- 2007:4. The study leads tothe following results. Inflation and real GDP are better explained respectively by Divisia M2and simple sum M2 in BEAC. In BCEAO, the contribution of each monetary aggregate to thefluctuations of inflation and real GDP is very worst except simple sum M2 in explainingprice level. Considering the forecasting ability, it appears that at the narrowest level ofaggregation, there is no difference between the two types of monetary aggregates in the twoCentral Banks. At the broader level, Divisia M2 has a slight edge over traditional M2 inpredicting real GDP in BEAC. In BCEAO, simple sum M2 dominates Divisia M2 inexplaining inflation.