Browsing by Author "Yabatfenta Getachew"

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    Effectiveness of Monetary Policy Transmission Mechanism on Macroeconomic Objectives; A Case of Selected East African Countries (Pooled Mean Group Estimation)
    (Addis Ababa University, 2019-06) Yabatfenta Getachew; Mesele W/areya
    This paper investigates the effectiveness of monetary policy transmission mechanism on macroeconomic objectives in cases of selected East African Countries using a Dynamic Panel ARDL model with Pooled Mean Group estimation method. It specifically examines the dynamic responses of exchange rate, real interest rate, domestic credit and broad money supply on economic growth rate, consumer price index and balance of payment by employing annual data from 1992 to 2017. To do so, three models (economic growth rate, consumer price index and balance of payment) and different tests (i.e. descriptive analysis, panel unit root test, Pedroni co integration test and pooled mean group estimation) were used. The empirical evidence for economic growth rate model suggests that exchange rate, real interest rate and broad money supply have a positive and significant long-run impact for economic growth rate, while domestic credit has a negative and significant impact for economic growth rate in both short-run and long run. Exchange rate and broad money supply have no significant impact for economic growth in the short run but real interest rate has positive and significant impact in the short run. Similarly, empirical result for consumer price index model shows that exchange rate and real interest rate have a significant and negative long-run impact for consumer price index whereas domestic credit and broad money supply have a significant and positive long-run impact for consumer price index. The short-run analysis suggests that real interest rate, domestic credit and broad money supply have a negative short-run impact for consumer price index while exchange rate has a positive and insignificant short-run impact. For balance of payment model, exchange rate and domestic credit have positive insignificant short run and significant long-run impact for balance of payment. However, real interest rate and broad money supply have negative short run and long-run impact for the balance of payment with insignificant impact of real interest rate both in short run and long run. Therefore, real interest rate and broad money supply have no significant impact for balance of payment in selected east African countries. The monetary authorities and policy makers should know the relationship between monetary policy transmission mechanisms and macroeconomic objectives with their central bank monetary policy.