Impact of Money Supply on Inflation in the Economic Community of West African States

This research investigates the impact of money supply by central banks on inflation in the Economic Community of West African States (ECOWAS) using broad money and the monetary policy rate as explanatory variables in the analysis of the economic relationship. The study used panel data containing the 15 ECOWAS countries and a time dimension of 7 years (2016 to 2022). The fixed effects model of panel data regression was employed to analyze the data, and the parameters were estimated using the within-groups fixed effects estimation approach. Findings from the results of the analysis show that every unit change in broad money leads to a positive effect of 27.67% on the inflation rate in the ECOWAS countries. The findings also reveal that the monetary policy rate has a positive effect of 16.01% on the inflation rate in the ECOWAS countries, and though the positive effect does not align with theoretical expectations, values in the confidence interval indicate chances of a negative effect, as there is a time lag between policy adoption and the desired policy effect. From the findings, the study recommends that central banks of the ECOWAS countries should reduce the amount of broad money by raising the required reserve ratio so as to reduce the inflation rate, and that the monetary policy rate be increased to decrease the inflation rate.