Financial stability in sub-Saharan Africa: Does monetary policy matter?

Abstract

The SDGs give priority to a high-quality monetary policy via domestic credit and the money supply. This objective has been widely studied and a rich literature exists on the subject. With this in mind, in this paper we examine how monetary policy (domestic credit and money supply) has affected financial stability in 48 sub-Saharan African countries between 2000 and 2021. We use various methods of analysis, including ordinary least squares (OLS), the Driscoll-Kraay method, whose robustness has been demonstrated by the method of generalised moments for systems (MMG-S). The results show that monetary policy through domestic credit and money supply has a positive impact on financial stability in sub-Saharan African countries. However, this result remains consistently positive in both franc and non-franc zones, but the effect is more pronounced in non-franc zones than in franc zones. We therefore recommend that policymakers adopt an appropriate attitude to personal finance, which can contribute to the general well-being of financial institutions and even the banking system.

Keywords

• Monetary policy
• Financial stability
• Domestic credit
• Money supply
• GMM-S