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Monetary Policy and Economic Growth: A Review of International Literature

Author

Listed:
  • Enock Nyorekwa Twinoburyo

    (Department of Economics, University of South Africa, Pretoria, South Africa)

  • Nicholas M. Odhiambo

    (Department of Economics, University of South Africa, Pretoria, South Africa)

Abstract

This paper aims to survey the existing literature, both theoretical and empirical, on the relationship between monetary policy and economic growth. While there has been a wide range of studies on the existing relationship between monetary policy and economic growth, the nexus between the two remains inconclusive. This paper takes a comprehensive view of the theoretical evolution of the relationship and the respective recent empirical findings. Overall, this paper shows that the majority of findings support the relevancy of monetary policy in supporting economic growth, mainly in financially developed economies with fairly independent central banks. The relationship tends to be weaker in developing economies with structural weaknesses and underdeveloped financial markets that are weakly integrated into global markets. This paper concludes that monetary policy matters for growth both in the short-run and long-run despite the prevailing ambiguous relationship. The paper recommends intensive financial development measure for developing countries as well as structural reforms to address to supply side deficiencies.

Suggested Citation

  • Enock Nyorekwa Twinoburyo & Nicholas M. Odhiambo, 2018. "Monetary Policy and Economic Growth: A Review of International Literature," Journal of Central Banking Theory and Practice, Central bank of Montenegro, vol. 7(2), pages 123-137.
    • Handle: RePEc:cbk:journl:v:7:y:2018:i:2:p:123-137
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    More about this item

    Keywords

    Money supply; Interest rates; Output stabilisation; Long run neutrality;
    All these keywords.

    JEL classification:

    • E42 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Monetary Sytsems; Standards; Regimes; Government and the Monetary System
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies

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