Effectiveness of Monetary Policy on Economic Growth in Ethiopia
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Date
2022-06
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Addis Ababa University
Abstract
This study examines the effectiveness of Monterey policy on economics growth in Ethiopia using time series data collected from 1990/92-2020/21. To analyse the data both descriptive statistics and econometrics model such as using Autoregressive Distributive lag (ARDL) model were applied. The main findings of the model attested that money supply contributes positively and significantly to economic growth in the short run, while in the long run the opposite is the case. Other independent variables such as gross capital formation and human capital have significant positive impact on economic growth in the short run. Whereas, terms of trade and trade openness have significant negative impact on real GDP in the short run; and insignificant negative impact in the long run. Also, reel effective exchange rate, labour force, capital formation, human capital and inflation have positive impact. Total factor productivity, terms of trade and trade openness have negatively affected output in the short run. Besides, The ECM has the expected negative sign with significant coefficient, showing the possibilities of adjustment of 60% of disequilibrium in the subsequent period. The study recommends that the NBE should ensure that the level of money supply growth is consistent with the inflation target and implements a prudent market- driven interest rate policy. And also the Bank should stabilize foreign exchange market and well-functioning money and financial markets should be also developed in the country.
Keywords: Monetary Policy, Economics Growth, Money supply, ARDL, ECM