The Effectiveness of Monetary Policy in Africa: Modeling the Impact of Financial Inclusion

Olaniyi Evans

Iranian Economic Review (IER), 2016, vol. 20, issue 3, 327-337

Abstract: This study uses annual data over the period 2005-2014 and the Panel VECM approach to examine financial inclusion and monetary policy effectiveness in Africa. The study shows that financial inclusion and monetary policy effectiveness are linked by a set of long-run relationships. Policy reaction to the positive financial inclusion shock is not significant. Policy reaction to the positive money supply shock is statistically significant and positive in the short-run while reactions are not significantly different from zero in the long-run. On the other hand, the positive interest rate has a positive and statistically significant permanent effect on the level of monetary policy effectiveness. To various degrees, financial inclusion, money supply and interest rate shocks have some role in explaining variations in monetary policy effectiveness, but in the long-run, more than 45 percent of variations in policy effectiveness are explained by interest rate shocks. Moreover, there exists a one-way causality from monetary policy effectiveness to financial inclusion. This study establishes that financial inclusion is not a significant driver of monetary policy effectiveness in Africa. On the contrary, monetary policy effectiveness is the driver of financial inclusion. For increased financial inclusion in Africa, therefore, heightened effectiveness of monetary policy will be required.

Keywords: Financial Inclusion; Monetary Policy; Panel VECM; Causality. (search for similar items in EconPapers)
Date: 2016
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (10)

Downloads: (external link)
ftp://80.66.179.253/eut/journl/20163-4.pdf (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:eut:journl:v:20:y:2016:i:3:p:327

Access Statistics for this article

Iranian Economic Review (IER) is currently edited by Dr.Hossien Abbasinejad

More articles in Iranian Economic Review (IER) from Faculty of Economics,University of Tehran.Tehran,Iran Contact information at EDIRC.
Bibliographic data for series maintained by [z.rahimalipour] ().