Does the Central Bank of West African States have an autonomous monetary policy?

This study examines whether the Central Bank of West African States (BCEAO) maintains monetary policy autonomy despite the CFA franc’s fixed exchange rate to the euro. Using Unrestricted Error Correction Models estimated separately for three policy rates spanning 1973Q1 to 2023Q4, we track how long-run policy rate passthrough from the Banque de France and European Central Bank (ECB) has evolved over time. During the discount rate era (1973–1998), the Banque de France rate exerted no statistically significant long-run influence on BCEAO policy, suggesting meaningful autonomy in the early decades of the franc zone. Following the 1994 devaluation and subsequent institutional reforms, however, ECB influence became the dominant determinant of BCEAO policy: a permanent 100 basis point ECB rate increase is associated with a 40–46-bps long-run increase in the BCEAO marginal lending rate and 17–19 bps in the minimum bid rate. Federal Reserve passthrough remains consistently smaller than ECB passthrough across all periods, confirming that the BCEAO’s constraint derives from the euro peg rather than the global financial cycle. These findings support critics who argue that the BCEAO has largely relinquished its monetary policy autonomy.