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

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  • Olaniyi Evans

    (University of Lagos, Akoka, Lagos, Nigeria.)

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.

Suggested Citation

  • Olaniyi Evans, 2016. "The Effectiveness of Monetary Policy in Africa: Modeling the Impact of Financial Inclusion," Iranian Economic Review (IER), Faculty of Economics,University of Tehran.Tehran,Iran, vol. 20(3), pages 327-337, Summer.
    • Handle: RePEc:eut:journl:v:20:y:2016:i:3:p:327
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    References listed on IDEAS

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    Cited by:

    1. Evans Olaniyi, 2017. "Back to the Land: The Impact of Financial Inclusion on Agriculture in Nigeria," Iranian Economic Review (IER), Faculty of Economics,University of Tehran.Tehran,Iran, vol. 21(4), pages 885-903, Autumn.
    2. Anarfo, Ebenezer Bugri & Abor, Joshua Yindenaba & osei, Kofi Achampong, 2020. "Financial regulation and financial inclusion in Sub-Saharan Africa: Does financial stability play a moderating role?," Research in International Business and Finance, Elsevier, vol. 51(C).
    3. Marwa Elsherif, 2019. "The Relationship between Financial Inclusion and Monetary Policy Transmission: The Case of Egypt," Proceedings of International Academic Conferences 9010737, International Institute of Social and Economic Sciences.
    4. Tonuchi E. Joseph & Nwolisa U. Chinyere & Obikaonu C. Pauline & Alase, A. Gbenga, 2021. "Monetary Policy Effectiveness and Financial Inclusion in Nigeria: FinTech, ‘the Disrupter’ or ‘Enabler’," International Journal of Applied Economics, Finance and Accounting, Online Academic Press, vol. 9(1), pages 19-27.
    5. Wale-Awe, Olawale & Evans, Olaniyi, 2023. "Financial inclusion through digital channels and the growth-inequality-poverty triangle: Evidence from Africa," MPRA Paper 119455, University Library of Munich, Germany.
    6. Xuluo Yin & Xuan Xu & Qi Chen & Jiangang Peng, 2019. "The Sustainable Development of Financial Inclusion: How Can Monetary Policy and Economic Fundamental Interact with It Effectively?," Sustainability, MDPI, vol. 11(9), pages 1-14, May.
    7. Evans, Olaniyi, 2022. "The criticality of institutions and the macroeconomy for education outcomes in Africa," MPRA Paper 118197, University Library of Munich, Germany.
    8. Adeola, Ogechi & Evans, Olaniyi & Hilson, Ebo, 2018. "Tourism and economic wellbeing in Africa," MPRA Paper 93685, University Library of Munich, Germany.
    9. Evans, Olaniyi, 2021. "The Curious Case of Petro-Monetary Transmission Mechanism in Oil-Producing Countries: An Analysis of the Effect of Oil Price on Inflation in Nigeria," MPRA Paper 118198, University Library of Munich, Germany.

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