Does Financial Development Explain the Cyclicality of Monetary Policy in Sub-Saharan Africa?

This paper evaluates the influence of financial development on the cyclicality of monetary policy in a sample of 22 Sub Saharan African countries. We use a GMM model to estimate an equation of monetary policy stance based on Taylori¯s rule over the period 1984-2012. We obtain the following results. Monetary policy is pro-cyclical in Sub Saharan African countries. Central Banks implement counter-cyclical monetary policy when the country exhibits high level of financial development and pro-cyclical monetary policy in the presence of low level of financial development. The threshold level at which monetary policy is a-cyclical lies between 15% and 18%.