Effects of Monetary Policy Transmission on Economic Growth in Sierra Leone

Elkanah Faux ()
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Elkanah Faux: Bowie State University

Chapter Chapter 4 in Monetary and Financial Systems in Africa, 2022, pp 81-93 from Springer

Abstract: Abstract The study examines the impact of monetary policies on economic growth in Sierra Leone using time series data for 1980–2019. Specifically, the study determines how changes in monetary policy transmission through interest rates, reel effective exchange rate, credit to the private sector, and lending rates affect real GDP growth in the country. The relationship between real GDP and monetary policy variables is estimated using the Fully Modified Ordinary Least Square regression. The approach addresses the problem of endogeneity and serial correlation by allowing heterogeneity in the long-run parameter estimates. The diagnostic tests for unit root and cointegration revealed a long-run relationship among the variables, thus indicating a long-run equilibrium relationship. The results from the study show the strength of monetary policy interventions in promoting economic growth in Sierra Leone through real effective exchange rates and monetary sector credit to the private sector. The study also reveals that inflation and interest rate had the expected negative signs but are not effective monetary policy transmission channels. Understanding the effectiveness of how monetary policy channels work in Sierra Leone is critical for policy implementation that enhances output growth.

Keywords: Monetary policy; Fiscal policy; Transmission channel; FMOLS approach (search for similar items in EconPapers)
Date: 2022
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Persistent link: https://EconPapers.repec.org/RePEc:spr:sprchp:978-3-030-96225-8_4

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DOI: 10.1007/978-3-030-96225-8_4

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