Impact of Monetary Policy on Economic Growth: Evidence from ECOWAS member Country 1980-2016
Author(s)
Murtala Usman Tukur , Oyefabi Ilemobola Solomon , Musa Audu ,
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Abstract
this study examines the impact of monetary policy on economic growth among ECOWAS’ member countries over the period 1980 – 2016. Among the specific objectives set for the study are to examine how changes in interest rates affect the economic growth of selected ECOWAS’ member states as well as evaluates the impact of exchange rate fluctuations on the economic growth of selected ECOWAS’ member states over the study period. To achieve the main and the specific objectives, annual time series data on interest rate (INTR), real exchange rate (EXCH), real gross domestic product (RGDP)) and inflation rate (INFL) were collected from the publications of the Central Bank of Nigeria (CBN), Bank of Ghana (BOG), Central Bank of Sierra-Leon (CBS), Central Bank of Gambia (CBG) and Central Bank of Liberia (CBL) and were analyzed using panel co-integration, Johansen co-integration and Fully Modified Least Squares (FMOLS).The result of co-integration reveals that there is a long-run relationship between the variables of the study. The result of FMOLS reveals mixed result on the impact of monetary policy on the individual members of ECOWAS investigated. For example, LEDR over the study period significantly impacts the GDP of Ghana, Gambia, and Liberia but not Sierra Leon and Nigeria. Result also shows that, though, EXCH was significant in influencing GDP only in Liberia the panel result shows that it is significant for all the countries of ECOWAS investigated. It is therefore recommended, among another thing, that the Central Banks of ECOWAS member-States should sustain their monetary policy reforms to enhance their overall economic performance and inflation should be used as an operational guide in evaluating the effectiveness of monetary policy implementation. In addition, domestic government borrowing from the banking system is severely affecting the cost of credit and crowding out the private sector, and this should be curtailed.
Keywords
Monetary policy, Lending rate, Real Exchange Rate, Real GDP, Economic Growth.
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