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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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    Citations

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    Cited by:

    1. Byaro, Mwoya & Pelizzo, Riccardo & Kinyondo, Abel, 2023. "What are the Main Drivers Behind the Acceleration of Tanzania's Economic Growth Over the Past Three Decades?," African Journal of Economic Review, African Journal of Economic Review, vol. 11(4), June.
    2. Truong Hong Trinh, 2022. "Towards Money Market in General Equilibrium Framework," IJFS, MDPI, vol. 10(1), pages 1-18, February.
    3. Ibrahim Alshomaly & Walid Shawaqfeh, 2020. "The Effect of Export Diversification on the Economic Growth of West-Asian Arab Countries," Journal of Social Sciences (COES&RJ-JSS), , vol. 9(2), pages 429-450, April.
    4. Nizam Ahmed Mehedi, 2021. "On The Contribution of Interest Expense (Income) on Total Output," Open Economics, De Gruyter, vol. 4(1), pages 31-56, January.
    5. Wang, Qingyu & Huang, Qing & Wu, Xiangfang & Tan, Jin & Sun, Panxu, 2023. "Categorical uncertainty in policy and bitcoin volatility," Finance Research Letters, Elsevier, vol. 58(PC).
    6. Rimsha Shahid & Rimsha Shahid & Hammad Badar & Aqsa Iftikhar & Sidra Ghulam Muhammad & Dr. Muhammad Navid Iqbal & Zulfiqar Hussain Awan & Faisal Nadeem Shah, 2024. "Influence on Banks' Credit Risk Through Monetary Policy Instruments: A Study of Listed Commercial Banks in Pakistan," Bulletin of Business and Economics (BBE), Research Foundation for Humanity (RFH), vol. 13(2), pages 255-265.
    7. Jiang Qingquan & Shoukat Iqbal Khattak & Manzoor Ahmad & Lin Ping, 2020. "A new approach to environmental sustainability: Assessing the impact of monetary policy on CO2 emissions in Asian economies," Sustainable Development, John Wiley & Sons, Ltd., vol. 28(5), pages 1331-1346, September.
    8. Ezeibekwe Obinna Franklin, 2020. "Monetary Policy and Domestic Investment in Nigeria: The Role of the Inflation Rate," Economics and Business, Sciendo, vol. 34(1), pages 139-155, February.
    9. Sedegah Kordzo & Odhiambo Nicholas M., 2021. "A Review of the Impact of External Shocks on Monetary Policy Effectiveness in Non-WAEMU Countries," Studia Universitatis „Vasile Goldis” Arad – Economics Series, Sciendo, vol. 31(3), pages 37-59, September.
    10. Husnain Shahzad & Ayza Shoukat & Muhammad Abdullah, 2023. "Unlocking the Secrets of Economic Growth: Understanding the Transmission Mechanism of the Monetary Policy," Bulletin of Business and Economics (BBE), Research Foundation for Humanity (RFH), vol. 12(4), pages 510-517.
    11. ILUNGA, Stéphanie & PINSHI, Christian, 2018. "Quel rôle pour les banques centrales dans la promotion de la croissance économique ? [What role for central banks in promoting economic growth?]," MPRA Paper 99706, University Library of Munich, Germany.
    12. Dávila-Ospina, Andrés O., 2023. "Hysteresis From Monetary Policy Mistakes: How Bad Could It Be?," Documentos CEDE 21003, Universidad de los Andes, Facultad de Economía, CEDE.
    13. Helder Ferreira de Mendonça & Iven Silva Valpassos, 2022. "Combination of economic policies: how the perfect storm wrecked the Brazilian economic growth," Empirical Economics, Springer, vol. 63(3), pages 1135-1157, September.
    14. Abakah, Emmanuel Joel Aikins & Tiwari, Aviral Kumar & Abdullah, Mohammad & Ji, Qiang & Sulong, Zunaidah, 2024. "Monetary policy uncertainty and ESG performance across energy firms," Energy Economics, Elsevier, vol. 136(C).
    15. Famoroti Jonathan Olusegun & Adeleke Omolade, 2022. "Impact of monetary policy transmission mechanism in West African countries," Studia Universitatis „Vasile Goldis” Arad – Economics Series, Sciendo, vol. 32(1), pages 20-42, March.
    16. Bodo Herzog, 2022. "Do Post-Corona European Economic Policies Lift Growth Prospects? Exploring an ML-Methodology," JRFM, MDPI, vol. 15(3), pages 1-13, March.
    17. Ibrahim Alshomaly & Walid Shawaqfeh, 2020. "The Effect of Export Diversification on the Economic Growth of West-Asian Arab Countries," Journal of Social Sciences (COES&RJ-JSS), , vol. 9(2), pages 429-450, April.
    18. Jaka Sriyana, 2019. "What drives economic growth sustainability? Evidence from Indonesia," Entrepreneurship and Sustainability Issues, VsI Entrepreneurship and Sustainability Center, vol. 7(2), pages 906-918, December.
    19. Peters Idowu & Yaaba N. Baba & Adetoba O. Olufunso & Tomologu-Okunomo E. Aduni & Tonuchi E. Joseph, 2020. "How Effective is Monetary Policy in the Presence of High Informality in Nigeria," Journal of Accounting, Business and Finance Research, Scientific Publishing Institute, vol. 10(2), pages 84-93.
    20. Olatunji Abdul Shobande & Oladimeji Tomiwa Shodipe, 2021. "Monetary Policy Interdependency in Fisher Effect: A Comparative Evidence," Journal of Central Banking Theory and Practice, Central bank of Montenegro, vol. 10(1), pages 203-226.
    21. R Sumithra, 2020. "Monetary Policy Goals for Economic Stability in India," Shanlax International Journal of Economics, Shanlax Journals, vol. 8(2), pages 5-11, March.
    22. Kunle Bankole Osinusi & Nurudeen Abiodun Lawal & Sodiq Olaide Bisiriyu, 2022. "Trade Balance, Exchange Rate and Money Supply in Nigeria: Growth Implications and Lesson for African Countries," Management & Economics Research Journal, Faculty of Economics, Commercial and Management Sciences, Ziane Achour University of Djelfa, vol. 4(2), pages 25-44, September.
    23. Cheng-Wen Lee & Hao-Yuan Yu, 2021. "Money Supply, Inflation and Economic Growth in China: An ARDL Bounds Testing Approach," Journal of Applied Finance & Banking, SCIENPRESS Ltd, vol. 11(1), pages 1-5.
    24. Samsul Anwar, 2020. "Weighting on Systemic Important Banking (SIB) in Indonesia: The Official Versus PCA Approaches," Journal of Central Banking Theory and Practice, Central bank of Montenegro, vol. 9(2), pages 155-182.
    25. Abille, Adamu Braimah & Mpuure, Desmond Mbe-Nyire, 2020. "Effect of Monetary Policy on Economic Growth in Ghana," Asian Journal of Applied Economics, Kasetsart University, Center for Applied Economics Research, vol. 27(2).

    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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