Abstract
The objective of this chapter is to determine the impact of a change in the key interest rates of the Central Bank of West African States (BCEAO), as well as other economic, monetary, and financial aggregates, on inflation in the West African Economic and Monetary Union (WAEMU). Specifically, the effects of interest rates, the money supply, imported inflation from the euro area, domestic credit, the fiscal deficit, and the output gap on inflation are evaluated. To this end, error correction models (ECMs) are used to calculate short- and long-term elasticities, while vector autoregressive (VAR) models are used to evaluate the generalized impulse response functions. The results show that most monetary and financial variables have an impact on the inflation rate. The impact of domestic credit on inflation seems to be greater than that of interest rates. Furthermore, the impact of the fiscal deficit on price trends is generally felt only over the long term. Therefore, efforts to control inflationary pressures should focus on the use of monetary policy instruments as well as on structural reforms to increase supply, which partially explains the evolution of the overall price level in the short term.