The role of monetary policy in moderating the effect of international trade price on economic performance in non-WAEMU countries

Purpose The present study complements the extant studies by empirically assessing the relevance of monetary policy in moderating the effect of oil price and terms of trade (TOT) on economic performance in non-WAEMU countries for the period 2000–2021. Design/methodology/approach Monetary policy is proxied by real interest rate (RIR), real effective exchange rate (REER) and bank credit while economic performance is understood in terms of real output, unemployment and inflation. The adopted empirical strategy is interactive fixed effects regressions. Findings The following main findings are established. First, RIR can be used to effectively moderate oil price and TOT in order to positively influence real output and the maximum or avoidable RIR policy thresholds are above policy range. Second, REER can be used to effectively moderate TOT for an overall positive effect on real output and the maximum or avoidable REER threshold of 150.142 REER index is within policy range. Third, bank credit does not effectively moderate the channels (i.e. oil price and TOT) for a significant incidence on real output. Fourth, only bank credit effectively moderates oil price for an overall negative effect on unemployment. However, for this to be possible, bank credit must exceed the threshold of 11.000 of private domestic credit (% GDP). Fifth, only REER effectively moderates TOT for a negative effect on inflation. However, the corresponding policy threshold is above the REER index policy range and hence, cannot be used by policy makers because it does not make economic/statistical sense. Policy implications are discussed. Originality/value This study extends the extant literature on potential monetary unions by assessing how monetary policy can be employed in order to moderate the manner in which international trade prices influence economic performance.