THE IMPACT OF MONETARY POLICY ON PRIVATE SECTOR CREDIT AND PRIVATE INVESTMENT IN BOTSWANA

Senzeni Mbanjwa

Working Papers from African Economic Research Consortium

Abstract: The main objective of this study was to investigate the impact of monetary policy on private sector credit and private investment in Botswana. The study employed a vector error correction model on quarterly data for the period 1990Q1 to 2017Q4. The Phillips Perron (PP) test for stationarity shows that the series are stationary at first difference. The Johansen Cointegration test depicts a long run relationship of one cointegrating vectors. The vector error correction model indicated that the monetary policy instrument i.e. bank rate has a negative impact on gross fixed capital formation in a case when the bank rate rises. This means that in a case of contractionary monetary policy, the domestic investment would fall by a magnitude of 0.02 per cent and this impact is felt in a year's time. On the other hand, expansionary monetary policy would lead to an increase in domestic investment by 0.02 per cent. The study was able to establish that the impact of credit on private investment is not statistically significant. Economic policy recommendations such as, the use of monetary policy to boost domestic investment and monitoring and evaluation of all the investment projects funded by the Government, were made in consideration of these results

Date: 2021-11-16
Note: African Economic Research Consortium
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