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The Relative Effectiveness of Monetary Policy Transmission Channels in Tanzania: Empirical Lesson for Post COVID-19 Recovery

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  • Mwamkonko, Mussa Ally

Abstract

This study examines the relative efficacy of monetary policy transmission channels in Tanzania. The study applied co-integration and error correction modeling approach to analyze the short-run and long-run comparative effects of five monetary policy transmission mechanisms on economic growth. The study found that growth-effects of monetary policy depends on transmission channels used. The results show that interest rate channel and stock price channel are not effective in Tanzania. The results further show that though the bank credit channel is working, it is weak. Moreover, the results reveal that exchange rate and expected inflation are the dominant transmission channels of monetary policy in Tanzania. Thus, to enhance interest rate, stock price, and bank credit channels concerted efforts are required to increase financial inclusion in Tanzania. The central bank, commercial banks, financial markets, and other players should continue increasing access and range of financial services; revising lending procedures to private sector; and devise strategies to encourage more economic agents, preferably the domestic investors, to participate in the stock exchange market. In addition, there is a need for the central bank to closely continue monitoring inflation and exchange rates as the dominant monetary policy transmission mechanisms.

Suggested Citation

  • Mwamkonko, Mussa Ally, 2023. "The Relative Effectiveness of Monetary Policy Transmission Channels in Tanzania: Empirical Lesson for Post COVID-19 Recovery," African Journal of Economic Review, African Journal of Economic Review, vol. 11(1), January.
    • Handle: RePEc:ags:afjecr:330411
    DOI: 10.22004/ag.econ.330411
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