Impact and Perspectives of Monetary Policy on Economic Growth in Eastern Africa

Abstract

The main objective of this research is to study the impact and perspectives of monetary policy on economic growth where growth determinants such as inflation, interest rate, investment, population growth and exchange rate were examined. The study sourced data from World Development Indicators for 7 Eastern African countries from 2010-2020. Fixed effect model based on the results of hausman specification test was chosen as appropriate model for estimation using panel data technique. Logarithm transformation for all variables was adopted since variables were in their nominal form. The established results demonstrated that investment positively impact economic growth as percentage increase in investment increase economic growth, this is consistent with growth in countries like Kenya, Uganda, Tanzania and Ethiopia. The result also indicated that increase in exchange rate decreases economic growth, this therefore need exchange rate stability in these countries. Furthermore, interest rate reduces economic growth; as increase in interest rate reduces the level of investment in Eastern Africa.

Keywords: Impact, Perspectives, Monetary policy, Economic Growth, Eastern Africa

DOI: 10.7176/EJBM/14-10-04

Publication date:May 31^st 2022