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Financial inclusion and monetary policy effectiveness: A sustainable development approach of developed and under-developed countries

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  • Muhammad Usman Arshad
  • Zeeshan Ahmed
  • Ayesha Ramzan
  • Muhammad Nadir Shabbir
  • Zahid Bashir
  • Fahad Najeeb Khan

Abstract

The study explores the causal relationship between monetary policy effectiveness and financial inclusion in developed and under-developed countries. Structural Vector Auto-regressive techniques have been inducted to explore the relationship between monetary policy effectiveness and financial inclusion. The study covers the secondary data of 10 developed and 30 underdeveloped countries throughout 2004–2018. It is concluded that monetary policy effectiveness and financial inclusion do not have a contemporaneous impact on each other. Nevertheless, the reduced-form Vector Auto-regressive witness the reverse causality between financial inclusion and monetary policy effectiveness in developed countries. Thus, effective monetary policy enhances financial inclusion in a country, and a higher degree of financial inclusion lowers the inflation rate and makes monetary policy effective. One way causality from monetary policy effectiveness to financial inclusion can be observed in under-developed countries. Using the Structural Vector auto-regressive technique and financial inclusion index composed of three-dimension to examine the relationship of monetary policy effectiveness and financial inclusion in developed and developing countries is considered the study’s significant contribution.

Suggested Citation

  • Muhammad Usman Arshad & Zeeshan Ahmed & Ayesha Ramzan & Muhammad Nadir Shabbir & Zahid Bashir & Fahad Najeeb Khan, 2021. "Financial inclusion and monetary policy effectiveness: A sustainable development approach of developed and under-developed countries," PLOS ONE, Public Library of Science, vol. 16(12), pages 1-19, December.
    • Handle: RePEc:plo:pone00:0261337
    DOI: 10.1371/journal.pone.0261337
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    References listed on IDEAS

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    Cited by:

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    2. Hin Yu Micah Cheung, 2024. "RETRACTED ARTICLE: Enriching Regional Economic Dynamics through a Knowledge-Driven Spatial Analysis Model: a Deep Learning Approach," Journal of the Knowledge Economy, Springer;Portland International Center for Management of Engineering and Technology (PICMET), vol. 15(3), pages 12293-12336, September.
    3. Simona Elena Ciobanu, 2024. "Financial Inclusion and Monetary Policy: A Review of Literature," Economics and Applied Informatics, "Dunarea de Jos" University of Galati, Faculty of Economics and Business Administration, issue 3, pages 314-324.

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