This document reviews the literature on the relationship between monetary policy and economic growth. It begins with an overview of the evolution of theories from classical quantity theory to modern New Keynesian and New Consensus models. While theories differ in their assumptions around price flexibility and market clearing, most support some short-run effect of monetary policy on output. Empirically, studies find mixed results, with some supporting and others finding no relationship, depending on factors like country development and institutional quality. Overall, the literature suggests monetary policy can impact growth in developed markets with independent central banks, while the relationship is weaker in developing economies.
Developing economies are different than developed economies in many aspects, i.e., in terms of institutional framework and political situation etc. Thus, the monetary policy needed in developing countries is also different than developed countries. The goal of this study is to investigate exchange rate channel of monetary transmission mechanism in a developing country’s setup. The variables included in our analysis are interest rate, exchange rate, exports, consumer price index and gross domestic product. Johansen cointegration technique is applied to analyze the long run relationship among variables while multivariate VECM granger causality test is used to explore the direction of causality among the set of our variables. We use annual data ranging from 1980 to 2015 while taking account of the limitations of time series data. Our findings suggest that output has a negative long run relationship with exchange rate and interest rate, positive relationship with exports and no statistically significant relationship with inflation. Interest rate granger causes all four of our variables thus showing the power of this policy tool. Exchange rate causes exports, consumer price index and output which means exchange rate is the second most powerful variable in our analysis. Output is granger caused by interest rate, exports and exchange rate which confirms the sensitivity of output to these variables. Consumer price index is granger caused by all four of our variables and came out to be the most sensitive variable in our analysis.
This paper analysed the forecasting ability of yield-curve as a predictor of the short-run fluctuations in economic activities in Namibia. The study employed the techniques of unit root, cointegration, impulse response functions and forecast error variance decomposition on the quarterly data covering the period 1996 to 2015. The results revealed a negative relationship between the term structure of interest rates and economic activities, though statistically insignificant. This suggests that the yield-curve has no forecasting ability as a predictor of economic activity in Namibia.
Developing economies are different than developed economies in many aspects, i.e., in terms of institutional framework and political situation etc. Thus, the monetary policy needed in developing countries is also different than developed countries. The goal of this study is to investigate exchange rate channel of monetary transmission mechanism in a developing country’s setup. The variables included in our analysis are interest rate, exchange rate, exports, consumer price index and gross domestic product. Johansen cointegration technique is applied to analyze the long run relationship among variables while multivariate VECM granger causality test is used to explore the direction of causality among the set of our variables. We use annual data ranging from 1980 to 2015 while taking account of the limitations of time series data. Our findings suggest that output has a negative long run relationship with exchange rate and interest rate, positive relationship with exports and no statistically significant relationship with inflation. Interest rate granger causes all four of our variables thus showing the power of this policy tool. Exchange rate causes exports, consumer price index and output which means exchange rate is the second most powerful variable in our analysis. Output is granger caused by interest rate, exports and exchange rate which confirms the sensitivity of output to these variables. Consumer price index is granger caused by all four of our variables and came out to be the most sensitive variable in our analysis.
This paper analysed the forecasting ability of yield-curve as a predictor of the short-run fluctuations in economic activities in Namibia. The study employed the techniques of unit root, cointegration, impulse response functions and forecast error variance decomposition on the quarterly data covering the period 1996 to 2015. The results revealed a negative relationship between the term structure of interest rates and economic activities, though statistically insignificant. This suggests that the yield-curve has no forecasting ability as a predictor of economic activity in Namibia.
The objective of this study is to identify the determinants of inflation in West Africa, mainly in the WAEMU zone, in order to contribute to improving the conduct of monetary policy. The equation of the exchange of the Quantitative Theory of the Currency and the generalized method of moments (MMG) in dynamic panel is used. Annual data concerning six countries in West Africa and range from 1991 to 2015. The results of the estimation show that in addition to the economic growth rate and the money supply, the devaluation has a significant effect on inflation. As we can see, inflation is not systematically a monetary phenomenon in West Africa. The authorities must therefore seek to determine the optimal threshold for the rate of increase of the money supply.
QUALITY ASSURANCE FOR ECONOMY CLASSIFICATION BASED ON DATA MINING TECHNIQUESIJDKP
Researchers in the quality assurance field used traditional techniques for increasing the organization income and take the most suitable decisions. Today they focus and search for a new intelligent techniques in order to enhance the quality of their decisions. This paper based on applying the most robust trend in computer science field which is data mining in the quality assurance field. The cases study which is discussed in this paper based on detecting and predicting the developed and developing countries based on the indicators. This paper uses three different artificial intelligent techniques namely; Artificial Neural Network (ANN), k-Nearest Neighbor (KNN), and Fuzzy k-Nearest Neighbor (FKNN). The main target of this paper is to merge between the last intelligent techniques applied in the computer science with the quality assurance approaches. The experimental result shows that proposed approaches in this paper achieved the highest accuracy score than the other comparative studies as indicates in the experimental result section.
This paper examine the impact of macroeconomic factors on firm level equity premium. Following
the concept of macro-based risk factor model, we consider macroeconomic variable set of equity premium
determinant. The macroeconomic variables include interest rate, money supply, industrial production, inflation
and foreign direct investment. The macroeconomic variables are not in control of the firm's management. These
are the external factors which affect the company as well as the overall market returns. The Macro-based
Multifactor Model is estimated for the whole sample. It is found that the market premium and the selected five
macroeconomic factors significantly affect the firm level equity premium of non-financial firms. Increase in
market premium, money supply, foreign direct investment and industrial production positively affect the firm
level equity premium while increase in interest rate and inflation negatively affects the firm level equity
premium. These findings are beneficial for the common shareholders, institutional investors and policy makers
to find more specific insight about the relationship between macroeconomic variables and equity premium of
non-financial sectors.
Causal Relationship between Stock market and Real Economy in India using Gran...sammysammysammy
This paper uses Granger Causality test to check whether Stock market (that are Sensex30 and Nifty50 Indices) affects Real GDP of India or vice versa happens. This is a research dissertation paper that I wrote for my Graduation degree.
This study examined the nature of the relationship between the macroeconomic variables and share prices using the Nairobi Securities Exchange All Share Index (NASI). The study used four macroeconomic variables namely; interest rate, inflation, exchange rate and gross domestic product (GDP) for the period January 2008 to December 2014. The study found a positive relationship between GDP and NSE share prices. Exchange rate was found to have an insignificant positive relationship with share prices while interest rates had negative relationship with share prices. Inflation rate was found to have significant negative relationship with share prices due to its effect on purchasing power. The study concluded that the four macroeconomic variables combined had strong positive and significant relationship with share prices. The macroeconomic variables accounted for 86.97% of changes in share prices. The study recommended that capital markets regulators and other government regulatory bodies should promote a stable macroeconomic environment in the country for optimal performance of shares and stock market at large.
This study examines whether economic stability in Indonesia capable predicted by the model Mundell-Fleming. Prediction proxy stability of the interaction of fiscal and monetary policy. During Indonesia's economic stability is largely determined by the strength of economic fundamentals, while economic fundamentals are strongly influenced by fiscal and monetary policies. Therefore flemming Mundell predicts how strong the economic stability in Indonesia ?, the statement in the analysis by using a long-term predictions are Vector Autoregression. Research findings indicate patterns of interaction predictions variety of fiscal and monetary policy, both short term, medium term and long term. It turned out that fiscal policies are derived from taxes are more effective than government spending to control economic growth, investment and inflation, but government spending is more effective to control the exchange rate. The monetary policy of interest rates more effectively control the exchange rate and inflation, while the money supply is more effective in controlling the growth of economy and investment.
Using a series of econometric techniques, the study analysed interaction between monetary policy and private sector credit in Ghana. This study made use of monthly dataset spanning January 1999 to December 2019 of credit to the private sector (PSC) and broad money supply (M2). The results reveal that there exists cointegration, a long run stationary relation between monetary policy and private sector credit. This implies, increases in credit should prompt long-term increases in monetary policy. It is not surprising that growth in the private sector might have a stronger effect on monetary policy. The Error Correction Test is statistically significant and that all the variables demonstrate similar adjustment speeds. This implies that in the short run, both money supply and credit are somewhat equally responsive to their last period’s equilibrium error. There is unidirectional causation from private sector credit to monetary policy. It can be said that, there is an interaction between money supply and private sector credit. Thus, credit to private sector holds great potential in promoting economic growth. It can be recommended to the government to increase the credit flow to the private sector because of its strategic importance in creating and generating growth of the economy.
INFLATION, INTEREST RATE AND EXCHANGE RATE IN NIGERIA: AN EXAMINATION OF THE ...AJHSSR Journal
ABSTRACT: This study examined the linkages among inflation, interest rate and exchange rate along with
money supply and GDP with the aim of showing how the interactions among variables should influence
monetary policy decisions in Nigeria using quarterly data from 2010 to 2018. The relationship among variables
was captured in a Vector Autoregressive (VAR) model. Co integration test was used to examine the long run
relationship among variables and consequently the estimates of a Vector Error Correction (VEC) model was
used to examine the short run relationship among variables. In our findingsexchange rate is indicated as the
most important monetary policy variable because it has a significant link with all variables in the model. The
findings show that price stability and economic growth could be achieve through effective exchange rate and
interest rate policies. It is recommended that the monetary authority should continue to intervene in the foreign
exchange market to stabilize exchange rate because as shown in this study, exchange rate in Nigeria has
significant links with inflation, interest rate, money supply and GDP; and increase in money supply to boost
domestic production by givinglow cost credit to firms that make use of more domestic inputs in production to
ensure that the increase in money supply does not lead to increase in import.
Empirical Analysis of Fiscal Dominance and the Conduct of Monetary Policy in ...AJHSSR Journal
The study empirically investigates fiscal dominance and the conduct of monetary policy in
Nigeria, using quarterly data from 1986Q1 to 2016Q4. It adopts the vector error correction mechanism (VECM)
and cointegration technique to analyze the data and make inference. The findings reveal that there is no
evidence of fiscal dominance in Nigeria. The empirical results show that budget deficit, domestic debt and
money supply have no significant influence on the average price level. However, budget deficit and domestic
debt are shown to have significant influence on money supply, but only in the short-run. The policy implication
is that the government should enforce fiscal discipline through the appropriate institution and the Central Bank
should be given autonomy to perform the primary function of long-term price stability, among other functions.
Macroeconomics is the branch of economics that deals with the structure, performance, behavior, and decision-making of the whole, or aggregate, economy. The two main areas of macroeconomic research are long-term economic growth and shorter-term business cycles.
The Effect of Money Supply on InflationHuongHoang70
A study of how money supply affects inflation. The results show that a higher quantity of money supply is not always a cause of inflation.
Multiple linear regression and the GLS method were applied with the use of #Stata software for this research.
However, some additional modifications are needed to improve the model's goodness of fit and more endogenous factors should be added.
Future study might be: Would stimulus packages cause stagflation?
The objective of this study is to identify the determinants of inflation in West Africa, mainly in the WAEMU zone, in order to contribute to improving the conduct of monetary policy. The equation of the exchange of the Quantitative Theory of the Currency and the generalized method of moments (MMG) in dynamic panel is used. Annual data concerning six countries in West Africa and range from 1991 to 2015. The results of the estimation show that in addition to the economic growth rate and the money supply, the devaluation has a significant effect on inflation. As we can see, inflation is not systematically a monetary phenomenon in West Africa. The authorities must therefore seek to determine the optimal threshold for the rate of increase of the money supply.
QUALITY ASSURANCE FOR ECONOMY CLASSIFICATION BASED ON DATA MINING TECHNIQUESIJDKP
Researchers in the quality assurance field used traditional techniques for increasing the organization income and take the most suitable decisions. Today they focus and search for a new intelligent techniques in order to enhance the quality of their decisions. This paper based on applying the most robust trend in computer science field which is data mining in the quality assurance field. The cases study which is discussed in this paper based on detecting and predicting the developed and developing countries based on the indicators. This paper uses three different artificial intelligent techniques namely; Artificial Neural Network (ANN), k-Nearest Neighbor (KNN), and Fuzzy k-Nearest Neighbor (FKNN). The main target of this paper is to merge between the last intelligent techniques applied in the computer science with the quality assurance approaches. The experimental result shows that proposed approaches in this paper achieved the highest accuracy score than the other comparative studies as indicates in the experimental result section.
This paper examine the impact of macroeconomic factors on firm level equity premium. Following
the concept of macro-based risk factor model, we consider macroeconomic variable set of equity premium
determinant. The macroeconomic variables include interest rate, money supply, industrial production, inflation
and foreign direct investment. The macroeconomic variables are not in control of the firm's management. These
are the external factors which affect the company as well as the overall market returns. The Macro-based
Multifactor Model is estimated for the whole sample. It is found that the market premium and the selected five
macroeconomic factors significantly affect the firm level equity premium of non-financial firms. Increase in
market premium, money supply, foreign direct investment and industrial production positively affect the firm
level equity premium while increase in interest rate and inflation negatively affects the firm level equity
premium. These findings are beneficial for the common shareholders, institutional investors and policy makers
to find more specific insight about the relationship between macroeconomic variables and equity premium of
non-financial sectors.
Causal Relationship between Stock market and Real Economy in India using Gran...sammysammysammy
This paper uses Granger Causality test to check whether Stock market (that are Sensex30 and Nifty50 Indices) affects Real GDP of India or vice versa happens. This is a research dissertation paper that I wrote for my Graduation degree.
This study examined the nature of the relationship between the macroeconomic variables and share prices using the Nairobi Securities Exchange All Share Index (NASI). The study used four macroeconomic variables namely; interest rate, inflation, exchange rate and gross domestic product (GDP) for the period January 2008 to December 2014. The study found a positive relationship between GDP and NSE share prices. Exchange rate was found to have an insignificant positive relationship with share prices while interest rates had negative relationship with share prices. Inflation rate was found to have significant negative relationship with share prices due to its effect on purchasing power. The study concluded that the four macroeconomic variables combined had strong positive and significant relationship with share prices. The macroeconomic variables accounted for 86.97% of changes in share prices. The study recommended that capital markets regulators and other government regulatory bodies should promote a stable macroeconomic environment in the country for optimal performance of shares and stock market at large.
This study examines whether economic stability in Indonesia capable predicted by the model Mundell-Fleming. Prediction proxy stability of the interaction of fiscal and monetary policy. During Indonesia's economic stability is largely determined by the strength of economic fundamentals, while economic fundamentals are strongly influenced by fiscal and monetary policies. Therefore flemming Mundell predicts how strong the economic stability in Indonesia ?, the statement in the analysis by using a long-term predictions are Vector Autoregression. Research findings indicate patterns of interaction predictions variety of fiscal and monetary policy, both short term, medium term and long term. It turned out that fiscal policies are derived from taxes are more effective than government spending to control economic growth, investment and inflation, but government spending is more effective to control the exchange rate. The monetary policy of interest rates more effectively control the exchange rate and inflation, while the money supply is more effective in controlling the growth of economy and investment.
Using a series of econometric techniques, the study analysed interaction between monetary policy and private sector credit in Ghana. This study made use of monthly dataset spanning January 1999 to December 2019 of credit to the private sector (PSC) and broad money supply (M2). The results reveal that there exists cointegration, a long run stationary relation between monetary policy and private sector credit. This implies, increases in credit should prompt long-term increases in monetary policy. It is not surprising that growth in the private sector might have a stronger effect on monetary policy. The Error Correction Test is statistically significant and that all the variables demonstrate similar adjustment speeds. This implies that in the short run, both money supply and credit are somewhat equally responsive to their last period’s equilibrium error. There is unidirectional causation from private sector credit to monetary policy. It can be said that, there is an interaction between money supply and private sector credit. Thus, credit to private sector holds great potential in promoting economic growth. It can be recommended to the government to increase the credit flow to the private sector because of its strategic importance in creating and generating growth of the economy.
INFLATION, INTEREST RATE AND EXCHANGE RATE IN NIGERIA: AN EXAMINATION OF THE ...AJHSSR Journal
ABSTRACT: This study examined the linkages among inflation, interest rate and exchange rate along with
money supply and GDP with the aim of showing how the interactions among variables should influence
monetary policy decisions in Nigeria using quarterly data from 2010 to 2018. The relationship among variables
was captured in a Vector Autoregressive (VAR) model. Co integration test was used to examine the long run
relationship among variables and consequently the estimates of a Vector Error Correction (VEC) model was
used to examine the short run relationship among variables. In our findingsexchange rate is indicated as the
most important monetary policy variable because it has a significant link with all variables in the model. The
findings show that price stability and economic growth could be achieve through effective exchange rate and
interest rate policies. It is recommended that the monetary authority should continue to intervene in the foreign
exchange market to stabilize exchange rate because as shown in this study, exchange rate in Nigeria has
significant links with inflation, interest rate, money supply and GDP; and increase in money supply to boost
domestic production by givinglow cost credit to firms that make use of more domestic inputs in production to
ensure that the increase in money supply does not lead to increase in import.
Empirical Analysis of Fiscal Dominance and the Conduct of Monetary Policy in ...AJHSSR Journal
The study empirically investigates fiscal dominance and the conduct of monetary policy in
Nigeria, using quarterly data from 1986Q1 to 2016Q4. It adopts the vector error correction mechanism (VECM)
and cointegration technique to analyze the data and make inference. The findings reveal that there is no
evidence of fiscal dominance in Nigeria. The empirical results show that budget deficit, domestic debt and
money supply have no significant influence on the average price level. However, budget deficit and domestic
debt are shown to have significant influence on money supply, but only in the short-run. The policy implication
is that the government should enforce fiscal discipline through the appropriate institution and the Central Bank
should be given autonomy to perform the primary function of long-term price stability, among other functions.
Macroeconomics is the branch of economics that deals with the structure, performance, behavior, and decision-making of the whole, or aggregate, economy. The two main areas of macroeconomic research are long-term economic growth and shorter-term business cycles.
The Effect of Money Supply on InflationHuongHoang70
A study of how money supply affects inflation. The results show that a higher quantity of money supply is not always a cause of inflation.
Multiple linear regression and the GLS method were applied with the use of #Stata software for this research.
However, some additional modifications are needed to improve the model's goodness of fit and more endogenous factors should be added.
Future study might be: Would stimulus packages cause stagflation?
Exchange Rate Overshooting and its Impact on the Balance of Trade for the Tur...Hüseyin Tekler
Exchange rate overshooting is the short run phenomenon under the Dornbusch Model presented in 1976. We are really desiderative to find out whether the overshoots are for the short run or for the long run period for the Turkish economy. The estimated result using the Johansen Julius method and VECM, we have found that overshooting is for the short run period as opposed to the findings of Bahmani-Oskooee & Orhan (2000) while the Purchasing power parity [PPP] does not hold for the Turkish economy.
MonetarismName of the studentName of the ProfessorNa.docxgilpinleeanna
Monetarism
Name of the student
Name of the Professor
Name of the Course
Name of the University
Date
Monetarism
Monetarism is an economic theory formulated by Milton Friedman and mainly focuses on the macroeconomic effects and importance of the role of government in maintaining money supply in circulation. This theory proposes that the amount of money in circulation impacts the overall economy in terms of output, inflation and price level of commodities. The sources of information for this paper are secondary in nature. The secondary resources are websites, books, journal articles and opinion papers pertaining to the theoretical concepts. The scope of the paper confines to the academic application and should be used only in the consideration of the practical variables applicable to the industry.
The monetarists believe that monetary policy should be made by the government and should always be based on the targeting the growth rate rather than the discretionary monetary policy. This theory argues that the central bank plays an important role in maintaining the money supply and it should focus on the maintaining the price stability while making the monetary policy because that excessive money supply always results in inflation.
Monetarism is basically rooted into the hard money policies in 19th century and the monetary policies of John Maynard Keynes. Keyes mainly focused on the value stability of money according to which sufficient supply of money led to the alternate currency and collapse leading to panic. Friedman mainly focused on stability of price which is attained when there is equilibrium between demand and supply of money.
According to Friedman, the money supply should automatically be increased according to a fixed percentage per year which is also called as fixed monetary rule or Friedman k-percent rule. According to this rule, the increase in money supply could be determined by software application and that can anticipate all the money supply changes.
The active manipulation of money supply or increase will cause more destabilization than stabilize it. In 1965 Milton Friedman restated the quantity theory of money according to which demand for money is governed by the certain number of variables. When the money supply expands the people of the country do not hold the money in bank balances but would put that money into the economy which will increase the money spent on every commodity disturbing the price balance. This is because the commodity will hold less value as compared to when people had less money. The price of the commodity will rise and aggregate demand will increase. Similarly, when the money supply reduces people save the money and the overall spending decreases leading to decrease in demand and fall in price.
The application of theory of Monetarism was seen in 1979 when Federal Chief Paul Volker fought inflation by reducing the money supply and in result he was able to create price stability. The his ...
Savings-Growth-Inflation nexus in Asia: Panel Data Approachiosrjce
The present study examines the savings-growth-inflation nexus in Asia through panel data approach
for the period 1981 to 2011. The inter-relationship between saving and economic growth is found to be
significant and unidirectional running from saving to economic growth. Economic growth negatively and
significantly affects inflation but inflation positively and significantly affects saving which supports Deaton’s
hypothesis. The variables such as saving, trade openness and population growth are found to be significant
determinants economic growth. Except GDP, variables such as real interest rate, inflation, dependency ratio
and literacy rate are found to be significant determinants of saving rate. Similarly, variables such as money
supply, growth rate and real interest rate are found to be the major determinants of inflation. No country
specific effects has been found for explaining growth rate of per capita real GDP but in case of saving rate and
inflation rate, many countries exhibit individual effects which are modeled as fixed effects in the panel data
framework. As contrary to the time invariant country fixed effects, there is no consistent country invariant year
fixed effect on real GDP per capita growth rate and saving rate, while there is highly significant negative effect
on inflation. As saving affects GDP per capita growth positively and significantly, policies should be framed in
such a way that encourage savings in Asian economies which in turn may lead sustained higher GDP per capita
growth.
how to sell pi coins at high rate quickly.DOT TECH
Where can I sell my pi coins at a high rate.
Pi is not launched yet on any exchange. But one can easily sell his or her pi coins to investors who want to hold pi till mainnet launch.
This means crypto whales want to hold pi. And you can get a good rate for selling pi to them. I will leave the telegram contact of my personal pi vendor below.
A vendor is someone who buys from a miner and resell it to a holder or crypto whale.
Here is the telegram contact of my vendor:
@Pi_vendor_247
What price will pi network be listed on exchangesDOT TECH
The rate at which pi will be listed is practically unknown. But due to speculations surrounding it the predicted rate is tends to be from 30$ — 50$.
So if you are interested in selling your pi network coins at a high rate tho. Or you can't wait till the mainnet launch in 2026. You can easily trade your pi coins with a merchant.
A merchant is someone who buys pi coins from miners and resell them to Investors looking forward to hold massive quantities till mainnet launch.
I will leave the telegram contact of my personal pi vendor to trade with.
@Pi_vendor_247
how to sell pi coins on Bitmart crypto exchangeDOT TECH
Yes. Pi network coins can be exchanged but not on bitmart exchange. Because pi network is still in the enclosed mainnet. The only way pioneers are able to trade pi coins is by reselling the pi coins to pi verified merchants.
A verified merchant is someone who buys pi network coins and resell it to exchanges looking forward to hold till mainnet launch.
I will leave the telegram contact of my personal pi merchant to trade with.
@Pi_vendor_247
how to sell pi coins effectively (from 50 - 100k pi)DOT TECH
Anywhere in the world, including Africa, America, and Europe, you can sell Pi Network Coins online and receive cash through online payment options.
Pi has not yet been launched on any exchange because we are currently using the confined Mainnet. The planned launch date for Pi is June 28, 2026.
Reselling to investors who want to hold until the mainnet launch in 2026 is currently the sole way to sell.
Consequently, right now. All you need to do is select the right pi network provider.
Who is a pi merchant?
An individual who buys coins from miners on the pi network and resells them to investors hoping to hang onto them until the mainnet is launched is known as a pi merchant.
debuts.
I'll provide you the Telegram username
@Pi_vendor_247
how to sell pi coins in South Korea profitably.DOT TECH
Yes. You can sell your pi network coins in South Korea or any other country, by finding a verified pi merchant
What is a verified pi merchant?
Since pi network is not launched yet on any exchange, the only way you can sell pi coins is by selling to a verified pi merchant, and this is because pi network is not launched yet on any exchange and no pre-sale or ico offerings Is done on pi.
Since there is no pre-sale, the only way exchanges can get pi is by buying from miners. So a pi merchant facilitates these transactions by acting as a bridge for both transactions.
How can i find a pi vendor/merchant?
Well for those who haven't traded with a pi merchant or who don't already have one. I will leave the telegram id of my personal pi merchant who i trade pi with.
Tele gram: @Pi_vendor_247
#pi #sell #nigeria #pinetwork #picoins #sellpi #Nigerian #tradepi #pinetworkcoins #sellmypi
Falcon stands out as a top-tier P2P Invoice Discounting platform in India, bridging esteemed blue-chip companies and eager investors. Our goal is to transform the investment landscape in India by establishing a comprehensive destination for borrowers and investors with diverse profiles and needs, all while minimizing risk. What sets Falcon apart is the elimination of intermediaries such as commercial banks and depository institutions, allowing investors to enjoy higher yields.
The European Unemployment Puzzle: implications from population agingGRAPE
We study the link between the evolving age structure of the working population and unemployment. We build a large new Keynesian OLG model with a realistic age structure, labor market frictions, sticky prices, and aggregate shocks. Once calibrated to the European economy, we quantify the extent to which demographic changes over the last three decades have contributed to the decline of the unemployment rate. Our findings yield important implications for the future evolution of unemployment given the anticipated further aging of the working population in Europe. We also quantify the implications for optimal monetary policy: lowering inflation volatility becomes less costly in terms of GDP and unemployment volatility, which hints that optimal monetary policy may be more hawkish in an aging society. Finally, our results also propose a partial reversal of the European-US unemployment puzzle due to the fact that the share of young workers is expected to remain robust in the US.
US Economic Outlook - Being Decided - M Capital Group August 2021.pdfpchutichetpong
The U.S. economy is continuing its impressive recovery from the COVID-19 pandemic and not slowing down despite re-occurring bumps. The U.S. savings rate reached its highest ever recorded level at 34% in April 2020 and Americans seem ready to spend. The sectors that had been hurt the most by the pandemic specifically reduced consumer spending, like retail, leisure, hospitality, and travel, are now experiencing massive growth in revenue and job openings.
Could this growth lead to a “Roaring Twenties”? As quickly as the U.S. economy contracted, experiencing a 9.1% drop in economic output relative to the business cycle in Q2 2020, the largest in recorded history, it has rebounded beyond expectations. This surprising growth seems to be fueled by the U.S. government’s aggressive fiscal and monetary policies, and an increase in consumer spending as mobility restrictions are lifted. Unemployment rates between June 2020 and June 2021 decreased by 5.2%, while the demand for labor is increasing, coupled with increasing wages to incentivize Americans to rejoin the labor force. Schools and businesses are expected to fully reopen soon. In parallel, vaccination rates across the country and the world continue to rise, with full vaccination rates of 50% and 14.8% respectively.
However, it is not completely smooth sailing from here. According to M Capital Group, the main risks that threaten the continued growth of the U.S. economy are inflation, unsettled trade relations, and another wave of Covid-19 mutations that could shut down the world again. Have we learned from the past year of COVID-19 and adapted our economy accordingly?
“In order for the U.S. economy to continue growing, whether there is another wave or not, the U.S. needs to focus on diversifying supply chains, supporting business investment, and maintaining consumer spending,” says Grace Feeley, a research analyst at M Capital Group.
While the economic indicators are positive, the risks are coming closer to manifesting and threatening such growth. The new variants spreading throughout the world, Delta, Lambda, and Gamma, are vaccine-resistant and muddy the predictions made about the economy and health of the country. These variants bring back the feeling of uncertainty that has wreaked havoc not only on the stock market but the mindset of people around the world. MCG provides unique insight on how to mitigate these risks to possibly ensure a bright economic future.
Poonawalla Fincorp and IndusInd Bank Introduce New Co-Branded Credit Cardnickysharmasucks
The unveiling of the IndusInd Bank Poonawalla Fincorp eLITE RuPay Platinum Credit Card marks a notable milestone in the Indian financial landscape, showcasing a successful partnership between two leading institutions, Poonawalla Fincorp and IndusInd Bank. This co-branded credit card not only offers users a plethora of benefits but also reflects a commitment to innovation and adaptation. With a focus on providing value-driven and customer-centric solutions, this launch represents more than just a new product—it signifies a step towards redefining the banking experience for millions. Promising convenience, rewards, and a touch of luxury in everyday financial transactions, this collaboration aims to cater to the evolving needs of customers and set new standards in the industry.
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1. Monetary Policy and Economic Growth: A Review of International Literature 123
* Corresponding Author
Department of Economics,
University of South Africa,
Pretoria, South Africa
E-mail:
etwinon@gmail.com
** Department of Economics,
University of South Africa,
Pretoria, South Africa
E-mail:
odhianm@unisa.ac.za
nmbaya99@yahoo.com
Journal of Central Banking Theory and Practice, 2018, 2, pp. 123-137
Received: 12 May 2017; accepted: 10 July 2017
UDK: 338.23:336.74]:002.2
DOI: 10.2478/jcbtp-2018-0015
Enock Nyorekwa Twinoburyo*
Nicholas M. Odhiambo**
Monetary Policy and Economic
Growth: A Review of International
Literature
Abstract: This paper aims to survey the existing literature, both
theoretical and empirical, on the relationship between monetary
policy and economic growth. While there has been a wide range of
studies on the existing relationship between monetary policy and
economic growth, the nexus between the two remains inconclusive.
This paper takes a comprehensive view of the theoretical evolution of
the relationship and the respective recent empirical findings. Over-
all, this paper shows that the majority of findings support the rel-
evancy of monetary policy in supporting economic growth, mainly
in financially developed economies with fairly independent central
banks. The relationship tends to be weaker in developing economies
with structural weaknesses and underdeveloped financial markets
that are weakly integrated into global markets. This paper concludes
that monetary policy matters for growth both in the short-run and
long-run despite the prevailing ambiguous relationship. The paper
recommends intensive financial development measure for develop-
ing countries as well as structural reforms to address to supply side
deficiencies.
Key Words: Money supply, Interest rates, Output stabilisation, Long
run neutrality
JEL Classification: E42, E52, E58.
2. Journal of Central Banking Theory and Practice
124
1. Introduction
Monetary policy and economic growth theories have evolved rapidly over time,
dominated by dissimilarities, obscurities, inconclusiveness and cross currents
(Brunner and Meltzer, 1972). Economic growth theories and monetary policy
predate as far back to classical quantity theory of money (QTM) (Gali, 2008).
However, modern theories only came to the fore in the 1930s, with the Keynesian
Liquidity Preference Theory, followed by monetarism (a manifestation from the
QTM), and subsequently by several theories, namely: New Classical real busi-
ness cycles, the New Keynesian Model and New Consensus Model (NCM), which
have been at the center of monetary policy analysis over the last two or so dec-
ades (Goodfriend and King, 1997; Arestis and Sawyer, 2008). Over the years, the
short-run and long-run impact of monetary policy on real variables, in particular
on output, has remained ambiguously at the centre of research (Walsh, 2003).
Most studies have focused largely on the monetary policy neutrality in the long
run and on developed countries (Asongu, 2014). This paper provides an eclec-
tic review of the international literature, both theoretical and empirical, on the
impact of monetary policy and economic growth in the short run and the long
run. The existing literature shows that different studies focus on different coun-
tries and country groups, periods and proxy variables, and different econometric
methodologies are used. Section 2 reviews theoretical literature on the relation-
ship between monetary policy and economic growth. Section 3 covers empirical
evidence. Finally, the conclusion is presented in Section 4.
2. Theoretical Review
The classical monetary theory is the first renowned theory of monetary policy
and is enshrined in the Irving Fisher QTM, which lays the foundation for the
link between monetary policy (money) and economic variables. In this theory,
both velocity of money and output are assumed as constant, thus any increase
in the quantity of money will only eventually increase prices proportionally in
accordance with the quantity theory. The long run growth was only affected by
real factors, and money supply has both short run and long run neutrality (Gali,
2008; Mankiw and Taylor, 2007). Keynes rejected the quantity theory, both theo-
retically and as a tool of applied policy, in part arguing that velocity of money is
unstable and not constant. QTM also assumed the absence of the trade-off be-
tween inflation and output (Keynes, 1936). Keynesianism rationalized that prices
are rigid and that the quantity of money adjusted rapidly. Money demand was
not exogenous but endogenous and is dependent on income and interest rates as
3. Monetary Policy and Economic Growth: A Review of International Literature 125
explained in the liquidity preference theory. The theory also assumes a positive
relationship between output and interest rate, based on the liquidity preference-
money supply relationship, also known as the LM curve. The basic version of the
IS_LM model assumes a fixed price level; and thus cannot be used to analyse
inflation but output in the short run (Hicks, 1937).
The liquidity preference theory combines money demand with the quantity of
money supplied by the central bank to determine the money equilibrium level.
This equilibrium makes interest rate a monetary phenomenon. Money supply
is assumed to be exogenous and any increase in the money supply will lead to
lower interest rate at which the quantity of money demanded equals the supply.
Lower interest rates have a positive feedback on marginal efficiency of capital
and investment, consequently leading to output expansion. Hicks IS/LM view of
the Keynes’s general theory was, however, contested empirically (Robinson, 1962;
Leijonhufvud, 1968; Backhouse and Bateman, 2011).
Keynes was sceptical on the effectiveness of monetary policy when the economy
is in a liquidity trap and also because of uncertainty in the financial markets.
The Keynes supported a more pronounced role of the fiscal policy. The assump-
tion of exogenous money supply in both classical and Keynesian theory equally
had been challenged and discarded in subsequent and modern theories (Romer,
2006). Prolonged low interest rates in the Keynes`s theory are also believed to
have distortions in form of unsustainable asset price bubbles (Schwartz, 2009).
Monetarist theory came to the fore in the 1950s, drawing its cornerstone from
the QTM and assuming that velocity in the quantity theory of money is generally
stable, which implies that nominal income is largely a function of the money sup-
ply (Friedman and Schwartz, 1963; Friedman 1968, 1970). Monetarist upheld the
principle of trade-off between inflation and output but reformulated the Philips
curve in terms of real wage and not nominal wages (Gottschalk, 2005). Equilibri-
um in labour market is obtained at natural rate and assumptions of sticky wages
prevail. The nominal rigidities in wages and prices imply that monetary policy
affects real income in the short run (stabilisation); an increase in money stock
would have temporary increase in real output (GDP) and employment in the
short run, but no impact in long run due to countervailing effect of an increase
in the general price. Money supply in the long run is inflationary, thus theory as-
sumed long-run monetary neutrality. There is substantial evidence found in even
recent literature to support this (see among others Bernanke and Mihov, 1998;
Bullard, 1999; Nogueira, 2009).
4. Journal of Central Banking Theory and Practice
126
Monetarism, however, has since been challenged on grounds of technological
developments and the instability of the money demand function (White, 2013).
Monetarism also assumed exogenous money supply which has been contested
theoretically and empirically (Romer, 2006). The assumption of constant veloc-
ity of money has been equally challenged (Mishkin, 2007). Long-run neutrality
has also been challenged in empirical literature: Evans (1996) finds that money is
not neutral in the long run if it is not in the short run, in particular, if growth is
endogenous. If growth is exogenous, long-run neutrality is found.
Post-monetarism has also been largely dominated by real business cycle models,
the New Classical Model, New Keynesian Models and the New Consensus Model.
The difference between these theories is actually slim and relates to the treatment
of nominal rigidities of wages and prices as well the treatment of demand (Good-
friend and King, 1997; Palley, 2007). The New Classical Monetary Model also as-
sumes perfect competition and full flexible prices in all markets. The model also
predicts neutrality (or near neutrality) of monetary policy with respect to real
variables. The New Classical model has four important assumptions, which are:
rational expectations, the natural rate hypothesis, continuous market clearing,
and agents having imperfect information (imperfect information drives cycles
in these models). The equilibrium dynamics of employment, output, and the real
interest rate are determined independently of monetary policy, and variations in
technology are assumed to be the only real driving force.
These assumptions laid foundation for the New Classical real business cycle
(RBC) theory has two principles: Money is of little importance in business cycles,
and secondly, business cycles are created by rational agents responding optimally
to real shocks (most importantly the technology) in an environment character-
ised by perfect competition and frictionless markets. Monetary policy (antici-
pated) will have no effect on real GDP according to the rational expectations
hypothesis and the continuous market clearing assumption. Only monetary
policy (unexpected) surprises would have a temporary effect on real variables
(Mankiw, 2006). The assumptions continuous market clearing and flexibility of
wages and prices along with instantaneous adjustment of the economy to its long
run equilibrium were rejected by the New Keynesian theorists (Mankiw, 2006).
Many empirical studies also reject the relevance of the theory (Gottschalk, 2005).
The integration of sticky prices and monopolistic competition into RBC frame-
works became the major distinguishing feature of New Keynesian Economics
(Goodfriend and King, 1997).
In new Keynesian models, prices and/or wages are temporarily inflexible so that
in response to outside shocks, with changes in fiscal or monetary policy, quan-
5. Monetary Policy and Economic Growth: A Review of International Literature 127
tities adjust. Monopolistically competitive firms are price-setters in the goods
market, and households are wage-setters in the labour market. New Keynesian
Economics refers to the retooling of traditional Keynesian models to be consist-
ent with microeconomic fundamentals. The theory upholds the long run neu-
trality and posits that monetary policy can only affect output in the short run.
Empirical evidence on the use of New Keynesian models remains slim, and that
practicality of theory is contested in part on grounds of absence of the role of
money (Arestis and Sawyer, 2008).
The New Consensus Model became a product of the New Classical Model and
New Keynesian Model; upholding the rational expectations of the former as well
as retaining the wage and price short run rigidities of the latter. It also became a
foundation of inflation targeting where price stability was the overriding objec-
tive while the other objectives including growth became secondary. Interest rates
are also considered the sole monetary policy instrument. The model posits that
monetary policy should focus on short-run output stabilization and long-run
price stability. The short-run dynamics are premised on the temporal nominal
rigidities but due to rational expectations, the market is able to clear and thus no
long run economic activity implications. The output stabilization is also traced in
the NCM aggregate demand curve, where the level of output is inversely related
to the real interest rate. This implies a short term rates monetary policy can affect
the demand side of the economy, which eventually converges towards the long
run supply side equilibrium (Fontana and Palacio-Vera, 2007)
The NCM, however, faces compelling criticism over its assumptions and its
practicability. There is limited empirical evidence to back the theory (Chari et
al. 2008; Arestis and Sawyer, 2008). The absence of money and exchange rate
roles, inadequate treatment of markets (financial, labour and capital markets),
the focus on a single instrument and independent central banks discounts its
operation usefulness, particularly for developing countries and open economies
(Arestis,2009; Arestis and Sawyer, 2008; and Fontana and Palacio-Vera, 2007 ).
The NCM may also be inappropriate for economies with persistence of supply
driven inflation, and so would be its theorized assumption of inflation elasticity
into other variables (Arestis and Sawyer, 2008; and Fontana and Palacio-Vera,
2007). The output stabilisation forward looking targeting has been in some recent
literature of Woodford (2007).
The underlying rejection of the NCM not only ignites the debate on the earlier
theories but it also raises consensus crisis on the role of monetary policy on out-
put (Fontana, 2010).
6. Journal of Central Banking Theory and Practice
128
3. Empirical Literature
Extensive work has been done in an attempt to establish the impact of monetary
policy on economic growth, yet with little consensus to date. Some studies have
confirmed limited or no impact of monetary policy. Mutuku and Koech (2014)
applying the recursive VAR methodology on time series data from 1997-2010 es-
timated the impact of monetary and fiscal policy shocks on economic growth
in Kenya revealed monetary policy (both money supply and short-term interest
rates) as insignificant in influencing the real output. They argue that the weak
nexus is attributed to weak structural, institutional and regulatory framework.
Using the vector auto regressive (VAR) model to measure the effect of monetary
policy on economic growth in Kenya, Kamaan (2014) also found that monetary
policy does not have an impact on economic growth. The results are corroborated
by Montiel et al. (2012) who estimated the Monetary Transmission Mechanisms
(MTMs) in Tanzania covering the period 2002m1–2010m9 using both recursive
and structural VAR. Monetary policy had no output effects. Using the economet-
ric regression model analysis on a monetarists’ approach, Lashkary and Kashani
(2011) studied the impact of monetary variables on economic growth in Iran dur-
ing the period 1959 to 2008 and found no significant relationship between the
money volume and real economic variables, economic growth and employment
However, a number of empirical studies confirm that monetary policy is crucial
for economic growth. Havi and Enu (2014) examine the relative importance of
monetary policy and fiscal policy on economic growth in Ghana over the pe-
riod of 1980 to 2012. The Ordinary Least Squares (OLS) estimation results re-
vealed that money supply as a measure monetary policy had a positive significant
impact on the Ghanaian economy. Vinayagathasan (2013) estimates the impact
of monetary policy on the real economy using a seven-variable structural VAR
model by utilizing monthly time series data from Sri Lanka covering the period
from January 1978 to December 2011. The study found that interest rate shocks
had a significant impact on output in accordance with the economic theory. It
also finds that positive money shock provides significant but inconsistent results
on output. Output declines rather than increase.
Kareem et al. (2013) used OLS method and correlation matrix to examine the
impact of fiscal and monetary policies on economic growth of Nigeria, with par-
ticular reference to the period between 1998 and 2008. They found that monetary
variables of narrow money and broad money are significant policy variables that
positively affect economic growth (real GDP growth rate) in Nigeria.
7. Monetary Policy and Economic Growth: A Review of International Literature 129
Davodi et al. (2013) used three variants of Structural VARs on monthly data sets
from 2000 to 2010 to determine MTMs in the East African Community. The
study found that MTM tends to be generally weak when using standard statistical
inferences, but somewhat stronger when using non-standard inference methods.
An expansionary monetary policy (a positive shock to reserve money) increases
output significantly in Burundi, Rwanda and Uganda. However, they also found
that an expansionary monetary policy (a negative shock to policy rate) increases
output in Burundi, Kenya and Rwanda. Berg et al. (2013) used the narrative ap-
proach pioneered by Romer and Romer (1989) to examine the monetary trans-
mission mechanisms in the tropics with a focus on four East African countries
(Uganda, Kenya, Tanzania and Rwanda). They found that there was clear evi-
dence of a working transmission mechanism: after a large policy-induced rise in
the short-term interest rate, lending and other interest rates rise, the exchange
rate tends to appreciate, and output growth tends to fall.
Fasanya et al. (2013) examined the impact of monetary policy on economic
growth in Nigeria using the Error Correction Model (ECM) on time-series data
covering 1975 to 2010. They revealed that a long-run relationship exists among
the variables and that inflation rate; exchange rate and external reserve are sig-
nificant monetary policy instruments that drive growth in Nigeria in accordance
with theoretical expectations. Money supply was found to be insignificant.
Onyeiwu (2012) examining the impact of monetary policy on the Nigerian
economy using the OLS method to analyse data between 1981 and 2008, found
that monetary policy proxied by money supply exerts a positive impact on GDP
growth.
Milani and Treadwell (2012) used a small-scale DSGE model to disentangle un-
anticipated and anticipated monetary policy shocks and study their effects. The
estimation used likelihood-based Bayesian methods on US data from 1960:q1
to 2009:q1 on the output gap, inflation, and the federal funds rate as observable
variables. They showed that the unanticipated monetary shocks have a smaller
and more short-lived impact on output and a large, delayed, and persistent effect
due to anticipated policy shocks. The overall fraction of economic fluctuations
that could be attributed to monetary policy remained limited.
Chaudhry et al. (2012) investigated long-run and short-run relationships of
monetary policy, inflation and economic growth in Pakistan using co-integra-
tion technique and the ECM for the period from 1972 to 2010. They found that
monetary policy variable of call money was insignificant in the short run but
positively significant in the long run. Mugume (2011) utilised the five-variable
8. Journal of Central Banking Theory and Practice
130
non-recursive VAR to estimate monetary transmission mechanisms in Uganda
using quarterly data between 1999q1 and 2009q1. Using broad money and three-
month T-bill rate (lending rate) as proxies of monetary policy, the results showed
that a shock to interest rate (91-day T-bill rate) was considered as the monetary
shock and it was found that a contractionary monetary policy reduced economic
growth lasting up to two quarters while innovation in broad money M2 had no
statistically significant effect on output.
Coibion (2011) estimated the effects of monetary shocks on the US economy for
the period from 1970 to 1996, using the standard VAR against the large effects
from the Romer and Roomer (2004) approach (R and R). The study found that
with the standard VAR approach, the monetary policy shocks appear to account
for very little of the fluctuations in the real economy, measured either via in-
dustrial production or unemployment. It was also found that the 1980-1982 and
the 1990 recessions could not be explained by the standard VAR. When a DSGE
model by Smets and Wouters (2007) was estimated, it accounted for medium-
sized effects of the monetary shocks on real variables, including output.
Jawaid et al. (2011) probed the effect of monetary, fiscal and trade policy on eco-
nomic growth in Pakistan, using the annual time series data from 1981 to 2009.
They employed the co-integration and ECM revealing the existence of positive
significant long-run and short-run relationship between monetary policy (money
supply) and economic growth. Senbet (2011) also investigated the relative impact
of fiscal versus monetary action on output in the USA using the VAR approach
and revealed a positive significant impact of money supply on economic growth.
Their findings are congruous with Adefeso and Mobolaji (2010) that also stud-
ied the relative effectiveness of fiscal and monetary policy on economic growth
in Nigeria using the co-integration technique and error correction mechanism,
based on annual data from 1970-2007.
Employing the OLS approach, Nouri and Samimi (2011) examined the relation-
ship between money supply and economic growth for the period during 1974
to 2008 in Iran. They found a positive significant relationship between money
supply and economic growth. Ogunmuyiwa and Ekone (2010) investigated the
relationship between money supply and economic growth in Nigeria between
1980 and 2006. The OLS and ECM revealed a positive impact of money supply on
economic growth both in short run and long run.
Moursi and El Mossallamy (2010) analysed monetary policy in Egypt and its ef-
fect on inflation and growth by using the Bayesian approach to estimate a dy-
namic stochastic general equilibrium (DSGE) model for a small closed economy.
9. Monetary Policy and Economic Growth: A Review of International Literature 131
Monthly time series data for the sample period 2002 to 2008 was utilised. They
found that the impact of monetary policy negative shock is relatively more signif-
icant on output than on inflation, indicating that expansionary monetary policy
is capable of stimulating economic growth without imposing too much pressure
on prices.
Amarasekara (2009) utilised both recursive VAR and semi-structural VAR meth-
odology on monthly data for the period from 1978 to 2005 to assess the effects of
monetary policy on economic growth and inflation in the small open develop-
ing economy of Sri Lanka. The results from recursive VAR were consistent with
results from the semi-structural VAR and they revealed a negative significant
impact of interest rate on growth. Positive innovations decreased GDP growth.
However, when money growth and exchange rate are used as policy indicators,
the impact on GDP growth contrasts the established findings/theory. Suleiman
et al. (2009) employed the Johnson co-integration test to investigate the long-
run relationship between money supply (M2), public expenditure, and economic
growth in Pakistan using annual data for the period 1977-2007. They found a
positive relationship between money supply (M2) and economic growth in the
long-run.
Buigut (2009) assessed the importance and similarity of the interest channel for
EAC countries using the VAR model in assessing the similarity of transmission
mechanism in the EAC (Uganda, Kenya and Tanzania). Rwanda and Burundi
were excluded due to data challenges. The annual data on three variables (real
GDP, CPI and Interest rates) used in different countries varied – Uganda (1984-
2005), Kenya (1984-2006), and Tanzania (1984-2005). No co-integration among
the variables was found. He found out that the interest rate transmission mecha-
nism was weak in all three countries and that a shock to the interest rate had no
statistically significant effect on real output.
The results of the Autoregressive distributed lag model employed by Ali et al.
(2008) to examine the effects of fiscal policy and monetary policy on economic
growth in South Asian countries using annual data from 1990 to 2007 indicated
that money supply had a positive and significant effect on economic growth in the
short and long run. Rafiq and Mallick (2008) examined the effects of monetary
policy shocks on output in the three euro-area economies – Germany, France,
and Italy (EMU3) – by applying a new VAR identification procedure. The results
showed that monetary policy innovations are at their most potent in Germany.
However, apart from Germany, it remained ambiguous as to whether a rise in
interest rates coincides with a fall in output, showing a lack of homogeneity in the
10. Journal of Central Banking Theory and Practice
132
responses. They concluded that monetary policy innovations play a modest role
in generating fluctuations in output for the EMU3.
Dele (2007) examined the monetary and macroeconomic stability perspective of
West African Monetary Zone Countries using quarterly data sample spanning
1991:1 to 2004:4. The regression results indicate that monetary policy, as captured
by money supply and credit to government, hurt real domestic output of these
countries. The study also shows that interest rates policy had adverse effects on
GDP contrary to the theoretical expectation of an inverse relationship and that
exchange rate devaluations have no effect on output.
Smets and Wouters, (2007) developed and estimated a DSGE model with sticky
prices and wages for the euro area. The model was estimated with Bayesian tech-
niques using seven key macroeconomic variables: GDP, consumption, invest-
ment, prices, real wages, employment, and the nominal interest rate. In addition,
they introduced ten orthogonal structural shocks (including productivity, labour
supply, investment, preference, cost-push, and monetary policy shocks) that al-
lowed for an empirical investigation of the effects of such shocks and of their con-
tribution to business cycle fluctuations in the euro area. They found monetary
policy shocks are important in driving variations in the euro area output.
Khabo and Harmse (2005) estimated the impact of monetary policy on South
Africa, using OLS on the annual data series from 1960 to 1997 and found that
money supply (M3) and inflation significantly related to economic growth in ac-
cordance with economic theory.
4. Conclusion
This paper has explored both theoretical and empirical literature on the relation-
ship between monetary policy and economic growth. The paper has also provid-
ed an overview of how monetary policy transmits to economic growth. Although
there is a wide range of studies on the existing relationship between monetary
policy and economic growth, the nexus between the two remains inconclusive.
Overall, the findings of this paper show that the majority of the previous studies
tend to support a positive impact of monetary policy on economic growth mainly
in financially developed economies with fairly independent central banks. The
relationship tends to be weaker in developing economies with underdeveloped
financial markets and weakly integrated into global markets. The study has also
revealed that the relationship between monetary policy and economic growth is
largely explained by, inter alia, the size of and competition within the financial
11. Monetary Policy and Economic Growth: A Review of International Literature 133
sector, the monetary and exchange rate regimes, and the degree of openness. This
paper concludes that monetary policy matters for growth both in the short-run
and long-run despite the prevailing ambiguous relationship. The paper recom-
mends intensive financial development measures for developing countries as well
as structural reforms to address to supply side deficiencies.
12. Journal of Central Banking Theory and Practice
134
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