Can Monetary Policy Drive Economic Growth? Empirical Evidence from Tanzania

Contemporary Economics, Vol. 12, No. 2, pp. 202-222, 2018

16 Pages Posted: 31 Jul 2018

See all articles by Enock Nyorekwa

Enock Nyorekwa

University of South Africa

Nicholas M. Odhiambo

University of South Africa

Date Written: June 30, 2018

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.

Keywords: Monetary policy, economic growth, interest rate, money supply

JEL Classification: E1, E43, E51, E52

Suggested Citation

Nyorekwa, Enock and Odhiambo, Nicholas M., Can Monetary Policy Drive Economic Growth? Empirical Evidence from Tanzania (June 30, 2018). Contemporary Economics, Vol. 12, No. 2, pp. 202-222, 2018. Available at SSRN: https://ssrn.com/abstract=3211177

Enock Nyorekwa (Contact Author)

University of South Africa ( email )

P.O. Box 392
UNISA
Pretoria, Gauteng 0003
South Africa

Nicholas M. Odhiambo

University of South Africa

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