BazEkon - The Main Library of the Cracow University of Economics

BazEkon home page

Main menu

Author
Twinoburyo Enock Nyorekwa (University of South Africa, Pretoria, South Africa), Odhiambo Nicholas M. (University of South Africa, Pretoria, South Africa)
Title
Can Monetary Policy Drive Economic Growth? Empirical Evidence from Tanzania
Source
Contemporary Economics, 2018, vol. 12, nr 2, s. 207-221, rys., tab., bibliogr. 77 poz.
Keyword
Polityka pieniężna, Wzrost gospodarczy, Stopa procentowa, Podaż pieniądza
Monetary policy, Economic growth, Interest rate, Money supply
Note
JEL Classification: E1, E43, E51, E52
summ.
Country
Tanzania
Tanzanian
Abstract
The role of monetary policy in promoting economic growth remains empirically an open research question. This paper attempts to bridge the knowledge gap by investigating the impact of monetary policy on economic growth in Tanzania during the period from 1975 to 2013, using the autoregressive distributed lag (ARDL) bounds-testing approach. To our knowledge, this study may be the first of its kind to examine in detail this nexus in Tanzania. The study uses two proxies of monetary policy, namely, money supply and interest rate, to examine this linkage. The empirical results of this study reveal no impact of monetary policy on economic growth in the long term - irrespective of the proxy used to measure monetary policy. However, the short-term results confirm the existence of monetary policy neutrality - but only when the interest rate is used as a proxy for monetary policy. When money supply is used to measure monetary policy, a negative relationship between monetary policy and economic growth is found to predominate. The study findings suggest that monetary policy may not be a panacea for economic growth in Tanzania. (original abstract)
Full text
Show
Bibliography
Show
  1. Al-Mashat R., & Billmeier A. (2007, December). The monetary transmission mechanism in Egypt (Working Paper No. 07/285). International Monetary Fund. Retrieved from https://www.imf.org/external/pubs/ft/wp/2007/wp07285.pdf
  2. Amarasekara C. (2009). The impact of monetary policy on economic growth & inflation in Sri Lanka. Staff Studies, 38, 1-44. http://doi.org/10.4038/ss.v38i1.1220
  3. Anyanwu J.C. (2014). Factors affecting economic growth in Africa: Are there any lessons from China? African Development Review, 26(3), 468-493. https://doi.org/10.1111/1467-8268.12105
  4. Arestis P. (2007). What is the new consensus in macroeconomics? In: P. Arestis (Ed.), Is there a new consensus in macroeconomics? (pp. 22-42). New York, NY: Palgrave Macmillan.
  5. Asongu S.A. (2014). A note on the long-run neutrality of monetary policy: New empirics. European Economics Letters, 3(1), 1-6. http://dx.doi.org/10.2139/ssrn.2493400
  6. Bank of Tanzania. (2011, June). Tanzania mainland's 50 years of independence: A review of the role & functions of the Bank of Tanzania (1961-2011). Retrieved from https://www.bot.go.tz/Adverts/PressRelease/2011-Nov-04-PressRelease.pdf
  7. Bank of Tanzania (2014). Publications and Statistics. Available at https://www.bot.go.tz/Publications/PublicationsAndStatistics.asp#Statistics
  8. Barro R. & Sala-i-Martin X. (1995). Economic growth. New York, NY: McGraw-Hill.
  9. Barro R.J. (1997). Determinants of economic growth: A cross-country empirical study. Cambridge, MA: The MIT Press.
  10. Berg A., Charry L., Portillo R., & Vlcek J. (2013, September). The monetary transmission mechanism in the Tropics: A Narrative approach (Working Paper No. 13/197). International Monetary Fund. Retrieved from https://www.imf.org/external/pubs/ft/wp/2013/wp13197.pdf
  11. Buigut S. (2009). Monetary policy transmission mechanism: Implications for the proposed East African Community (EAC) Monetary Union. Retrieved from https://pdfs.semanticscholar.org/7ad8/5292c2f547b0b75aff3dd639c3537646c0d7.pdf
  12. Bullard J. (1999). Testing long-run neutrality propositions: Lessons from the recent research. Federal Reserve Bank of St. Louis Review, 81(6), 57-78.
  13. Cheng K.C. (2006, December). A VAR analysis of Kenya's monetary policy transmission mechanism: How does the central bank's REPO rate affect the economy (Working Paper No. 06/300). International Monetary Fund. Retrieved from www.imf.org/external/pubs/ft/wp/2006/wp06300.pdf
  14. Christiano L., Eichenbaum M., & Evans C. (1999). Monetary policy shocks: What have we learned and to what end? In: J. Taylor & M. Woodfoord (Ed.), Handbook of Macroeconomics (Vol. 1, pp. 65-148). Amsterdam: North Holland.
  15. Davoodi H., Dixit S., & Pinter G. (2013, February). Monetary transmission mechanism in the East African Community: An empirical investigation (Working Paper No. 13/39). International Monetary Fund. Retrieved from http://www.imf.org/external/pubs/ft/wp/2013/wp1339.pdf
  16. Dele B.E. (2007). Monetary policy & economic performance of West African Monetary zone countries. (MPRA Working Paper No. 4308). University Library of Munich, Germany. Retrieved from https://mpra.ub.uni-muenchen.de/4308/1/MPRA_paper_4308.pdf
  17. Dickey D.A., & Fuller W.A. (1979). Distribution of the estimators for autoregressive time series with a unit root. Journal of the American Statistical Association, 74(366), 427-431. http://doi.org/10.2307/2286348
  18. Dornbusch R., Fischer S. & Startz R. (2012). Macroeconomics (10th ed.). New Delhi, Mcgraw Hill Education (India) Pvt. Ltd.
  19. Elliot G., Rothenberg T., & Stock J. (1996). Efficient tests for an autoregressive unit root. Econometrica, 64(4), 813-836. http://dx.doi.org/10.2307/2171846
  20. Engle R.F. & Granger C.J. (1987). Cointegration and error-correction: Representation, estimation and testing. Econometrica, 55(2), 251-276. http://doi.org/10.2307/1913236
  21. Fischer S. (1993, December). The role of macroeconomic factors in growth (Working Paper No. 4565). National Bureau of Economic Research. Available at https://ssrn.com/abstract=227969
  22. Fontana G., & Palacio-Vera A. (2007). Are long-run price stability and short-run output stabilization all that monetary policy can aim for? Metroeconomica, 58(2), 269-298. https://doi.org/10.1111/j.1467-999X.2007.00268.x
  23. Fosu O.A.E., & Magnus F.J. (2006). Bounds testing approach to cointegration: An examination of foreign direct investment trade and growth relationships. American Journal of Applied Sciences, 3(11), 2079-2085. https://doi.org/10.3844/ajassp.2006.2079.2085
  24. Haddad M. & Pancaro M. (2010, June). Can real exchange rate undervaluation boost exports and growth in developing countries? Yes, but not for long. Washington, DC: The World Bank. Retrieved from http://siteresources.worldbank.org/INTPREMNET/Resources/EP20.pdf
  25. Harris R., & Sollis R. (2003). Applied time series modelling and forecasting. West Sussex, UK: Wiley.
  26. Havi E.D.K., & Enu P. (2014). The effect of fiscal policy and monetary policy on Ghana's economic growth: Which policy is more potent? International Journal of Empirical Finance, 3(2), 61-75.
  27. Heintz J., & Ndikumana L. (2010). Is there a case for formal inflation targeting in Sub-Saharan Africa? Journal of African Economies, 20(2), 67-103. https://doi.org/10.1093/jae/ejq027
  28. Hossain A.A. (2014). Monetary policy, inflation and inflation volatility in Australia. Journal of Post Keynesian Economics, 36(4), 745-780. http://doi.org/10.2753/PKE0160-3477360408
  29. International Monetary Fund. (2014, April). Regional Economic Outlook. Sub-Saharian Africa. Fostering durable and inclusive growth. Washington, DC. Available at https://www.imf.org/en/Publications/REO/SSA/Issues/2017/02/01/Fostering-Durable-and-Inclusive-Growth
  30. International Monetary Fund. (2016, February). Third review under the policy support instrument-press release; staff report; and statement by the executive director for United Republic of Tanzania. International Monetary Fund Country Report, No. 29. Washington, DC. Retrieved from https://www.imf.org/external/pubs/ft/scr/2016/cr1629.pdf
  31. Issing O. (2001). Why price stability. In: A. Garcia-Herrero, V. Gaspar, L. Hoogduin, J. Morgan & B. Winkler (Eds.), Why price stability? (pp. 179-202). Frankfurt am Main: European Central Bank.
  32. Ivrendi M., & Yildirim Z. (2013, December 9). Monetary policy shocks and macroeconomic variables: Evidence from fast growing emerging economies (Discussion Papers No. 2013-61), Kiel Institute for the World Economy. Retrieved from http://www.economics-ejournal.org/economics/discussionpapers/2013-61/file
  33. Jawaid S.T., Quadri F.S., & Ali N. (2011). Monetary fiscal-trade policy and economic growth in Pakistan: Time series empirical investigation. International Journal of Economics and Financial Issues, 1(3), 133-138. Available at http://dergipark.gov.tr/download/article-file/362645
  34. Johansen S., & Juselius K. (1990). Maximum likelihood estimation and inference on cointegration with applications to the demand for money. Oxford Bulletin of Economics and Statistics, 52(2), 169-210. http://dx.doi.org/10.1111/j.1468-0084.1990.mp52002003.x
  35. Kareem R.O., Afolabi A.J., Raheem K.A., & Bashir N.O. (2013). Analysis of fiscal and monetary policies on economic growth: Evidence from Nigerian democracy. Current Research Journal of Economic Theory, 5(1), 11-19. Retrieved from http://www.maxwellsci.com/print/crjet/v5-11-19.pdf
  36. Khabo V., & Harmse C. (2005). The impact of monetary policy on economic growth of a small open economy: The case of South Africa. South African Journal of Economic and Management Sciences, 8(3). https://doi.org/10.4102/sajems.v8i3.1201
  37. Khan M.S., & Senhadji A.S. (2001). Threshold effects in the relationship between inflation and growth. International Monetary Fund Staff Papers, 48(1), 1-21. Retrieved from http://www.imf.org/External/Pubs/FT/staffp/2001/01a/pdf/khan.pdf
  38. Kohpaiboon A. (2003). Foreign trade regime and FDI growth nexus: A case study of Thailand. The Journal of Development Studies, 40(2), 55-69. https://doi.org/10.1080/00220380412331293767
  39. Lacker M.J. (2014, February 24). Can monetary policy affect economic growth? [Podcast]. Retrieved from https://www.richmondfed.org/press_room/speeches/jeffrey_m_lacker/2016/lacker_speech_20160224
  40. Lashkary M., & Kashani H.B. (2011). The impact of monetary variables on economic growth in Iran: A Monetarists' Approach. World Applied Sciences Journal, 15(3), 449-456. Retrieved from https://pdfs.semanticscholar.org/ec51/5675d6573c4405a5e858976275cf433b867f.pdf
  41. Levine R., & Renelt D. (1992). A sensitivity analysis of cross-country growth regressions. American Economic Review, 82(4), 942-963. Retrieved from http://www.jstor.org/stable/2117352
  42. Lucas R.E. (2003). Macroeconomic priorities. American Economic Review, 93(1), 1-14. Retrieved from http://www.jstor.org/stable/3132159
  43. Maehle N., Teferra H., & Khachatryan A. (2013, January). Exchange rate liberalization in selected Sub-Saharan African countries. Successes, failures, and lessons (Working Paper, No. 13/32). International Monetary Fund. Retrieved from http://www.imf.org/external/pubs/ft/wp/2013/wp1332.pdf
  44. Malik G., & Chowdhury A. (2001). Inflation and economic growth: Evidence from four South Asian Countries. Asia-Pacific Development Journal, 8(1), 123-135. Retrieved from http://citeseerx.ist.psu.edu/viewdoc/download?doi=10.1.1.516.9478&rep=rep1&type=pdf
  45. Mankiw G.N., & Taylor M.P. (2007). Macroeconomics. (European Edition). Basingstoke: Palgrave Macmillan.
  46. Mankiw N.G. (2010). Macroeconomics. (7th ed.). New York, NY: Worth Publishers.
  47. Mansouri B. (2005, December). The interactive impact of FDI & trade openness on economic growth: Evidence from Morocco. Paper presented at the 12th Economic Research Forum (ERF) Conference, Cairo.
  48. Maturu B., Maana I. & Kisinguh K. (2010). Monetary policy transmission mechanism in Kenya: A VAR Approach (Working Paper). Central Bank of Kenya.
  49. McCallum J. (1991). Credit rationing and the monetary transmission mechanism. American Economic Review, 81(4), 946-951. Retrieved from http://www.jstor.org/stable/2006654
  50. McCandless G.T., & Weber W.E. (1995). Some monetary facts. Federal Reserve Bank of Minneapolis. Quarterly Review, 19(3), 2-11. Retrieved from https://www.minneapolisfed.org/research/qr/qr1931.pdf
  51. Mester L.J. (2015, October 15). Long-run economic growth. Federal Reserve Bank of Cleveland. Retrieved from https://www.clevelandfed.org/en/newsroom-and-events/speeches/sp-20151015-long-run-economic-growth.aspx
  52. Mishra P., Montiel P.J., & Spilimbergo A. (2010). Monetary transmission in low income countries. (Working Paper No. 10/223). International Monetary Fund. Retrieved from https://www.imf.org/external/pubs/ft/wp/2010/wp10223.pdf
  53. Monteil P., Adam C., & O'Conell S. (2012). Financial architecture and the monetary transmission mechanism in Tanzania (Working Paper No 03). Centre for the Study of African Economies. Retrieved from http://www.csae.ox.ac.uk/materials/papers/csae-wps-2012-3.pdf
  54. Mugume A. (2011). Monetary transmission mechanisms in Uganda (Working Paper). Bank of Uganda. Retrieved from https://www.bou.or.ug/bou/bou-downloads/research/BouWorkingPapers/2011/All/Monetary_Transmission_Mechanisms_in_Uganda_BOU_version.pdf
  55. Mutoti N. (2006, June). Monetary policy transmission in Zambia (Working Paper No. 06). Bank of Zambia.
  56. Mutuku C., & Koech E. (2014). Monetary and fiscal policy shocks and economic growth in Kenya: VAR econometric approach. Journal of World Economic Research, 3(6), 95-108.
  57. Ndulu B. (1987). Structural adjustment policies and programmes: A case study of Tanzania. Helsinki: World Institute for development economics research for the United Nations University.
  58. Nogueira R.P. (2009). Is monetary policy really neutral in the long-run? Evidence for some emerging and developed economies. Economics Bulletin, 29(3), 2432-2437.
  59. Nord R., Sobolev Y., Dunn D., Hajdenberg A., Hobdari N., Maziad S., & Roudet S. (2009). Tanzania: The Story of an African Transition. Washington, DC: International Monetary Fund. Retrieved from https://www.imf.org/external/pubs/ft/books/2009/tanzania/tanzania.pdf
  60. Nouri M. and Samimi A. (2011). The Impact of Monetary Policy on Economic Growth in Iran. Middle-East Journal of Scientific Research, 9(6): 740-743. Retrieved from https://pdfs.semanticscholar.org/6c36/124e81b3731868b0417afb5bd66f796c1536.pdf
  61. Nyerere J.K. (1977). The Arusha Declaration. Ten years after. Dar es Salaam: Government Printer.
  62. Ogunmuyiwa M.S., & Ekone A.F. (2010). Money supply - economic growth nexus in Nigeria. Journal of Social Sciences, 22(3), 199 - 204. https://doi.org/10.1080/09718923.2010.11892802
  63. Onyeiwu C. (2012). Monetary policy and economic growth of Nigeria. Journal of Economics and Sustainable Development, 3(7), 62-70. Retrieved from http://www.iiste.org/Journals/index.php/JEDS/article/viewFile/2046/2025
  64. Papademos L. (2003, March). Economic cycles and monetary policy: Paper presented at the International Symposium of the Banque de France, Monetary Policy, Economic Cycle & Financial Dynamics, Paris.
  65. Phillips P.C.B., & Perron P. (1988). Testing for a unit root in time series regression. Biometrica, 75(2), 335-446. https://doi.org/10.1093/biomet/75.2.335
  66. Pesaran M.H., Shin Y. & Smith R.J. (2001). Bounds testing approaches to the analysis of level relationships. Journal of Applied Econometrics, 16(3), 289-326. Retrieved from http://www.jstor.org/stable/2678547
  67. Pollin R., & Zhu A. (2006). Inflation and economic growth: A cross-country nonlinear analysis. Journal of Post Keynesian Economics, 28(4), 593-614. http://www.tandfonline.com/doi/abs/10.2753/PKE0160-3477280404
  68. Rodrik D. (2008). The real exchange rate and economic growth. Brookings Papers on Economic Activity, 39(2), 365-439. Retrieved from https://www.brookings.edu/wp-content/uploads/2008/09/2008b_bpea_rodrik.pdf
  69. Romer C.D., & Romer D.H. (1989). Does monetary policy matter? A new test in the Spirit of Friedman and Schwartz. In: O. Blanchard, & S. Fisher (Eds.), NBER Macroecononomics Annual 1984 (Vol. 4, pp. 121-184). National Bureau of Economic Research. Cambridge, MA: The MIT Press. Retrieved from http://www.nber.org/chapters/c10964
  70. Sakyi D. (2011). Trade openness, foreign aid and economic growth in post-liberalization Ghana: An application of ARDL Bounds Test. Journal of Economics and International Finance, 3(3), 146-156. Retrieved from http://www.academicjournals.org/article/article1379672933_Sakyi.pdf
  71. Senbet D. (2011). The relative impact of fiscal versus monetary actions on output: A Vector Autoregressive (VAR) approach. Business and Economics Journal, 1-11. Retrieved from http://astonjournals.com/manuscripts/Vol2011/BEJ-25_Vol2011.pdf
  72. Smith C. (2004). The long-run effects of monetary policy on output growth. Reserve Bank of New Zealand Bulletin, 67(3), 6-18. Retrieved from https://www.rbnz.govt.nz/-/media/ReserveBank/Files/Publications/Bulletins/2004/2004sept67-3smith.pdf
  73. Vinayagathasan T. (2013, July). Monetary policy and the real economy: A structural VAR approach for Sri Lanka (Discussion Paper No. 13-13). National Graduate Institute for Policy Studies. Retrieved from http://www.grips.ac.jp/r-center/wp-content/uploads/13-13.pdf
  74. Weeks J. (2010, June). Why monetary policy is irrelevant in Africa South of the Sahara. London, UK: Centre for Development Policy and Research. School of Oriental and African Studies, University of London. Retrieved from https://www.soas.ac.uk/cdpr/publications/dv/file59766.pdf
  75. White W.R. (2013, September). Is monetary policy a science? The interaction of theory and practice over the last 50 years (Working Paper No. 155). Globalization and Monetary Policy Institute Federal Reserve Bank of Dallas. Retrieved from http://www.dallasfed.org/assets/documents/institute/wpapers/2013/0155.pdf
  76. World Bank. (2015). World Development Indicators 2015. Available at http://databank.worldbank.org/data/reports.aspx?source=2&country=TZA
  77. Yilmazkuday H. (2013). Inflation thresholds and growth. International Economic Journal, 27(1), 1-10. http://dx.doi.org/10.1080/10168737.2012.658831
Cited by
Show
ISSN
2084-0845
Language
eng
URI / DOI
http://dx.doi.org/10.5709/ce.1897-9254.272
Share on Facebook Share on Twitter Share on Google+ Share on Pinterest Share on LinkedIn Wyślij znajomemu