Financial Accelerator and Bank Excess Liquidity in CEMAC zone

Abstract

In this paper, we broaden the debate on the determinants of bank excess liquidity by focusing on a new mechanism: the financial accelerator via asymmetry information premiums.  This study covers the CEMAC zone, made up of six countries namely: Cameroon, Chad, Congo Brazzaville, Central African Republic, Gabon and Equatorial Guinea. Data for each of these countries are secondary sources, covering the quarterly period 1994 to 2016. Thus, 88 observations are considered in the study. We use shock simulation in a structural VAR as well as Co-integration analysis in an ARDL model. The empirical analysis shows that the financial rigidity caused by the increase in the information asymmetry premium leads to a fall in investment which weakens economic activity. The fall in economic activity amplifies the increase in information asymmetry premium resulting in an increase of free reserves. Finally, when the effect of the financial accelerator is reduced by stretching the information asymmetry premium towards zero, then the refunding policy through calls to tender favors a decrease of interest rates, a profusion of credit and consequently the increase of investments and consumption.  We suggest all measures aimed at reducing the asymmetry of information on the credit market, in particular, the creation of credit offices and / or public credit registers, the creation of rating agencies for companies and individuals, improvement of the quality of institutions whose poor-quality leads to the camouflage of information and moral hazards.

JEL Classification: E1, E12, E5, E50 , E51, E52

Paper type: Empirical research