Nexus between Monetary Policy and economic growth in Tanzania from 1970 to 2020

Abstract

Macroeconomic policy frequently applied to boost economic growth as well as to fulfil macroeconomic objectives is monetary policy. This study examines the impact of monetary policy on economic growth in Tanzania. The research was directed by 4 specific objectives, which were: to examine the association between exchange rate and economic growth in Tanzania, to find out the relationship between money supply and economic growth in Tanzania, to examine the association between inflation rate and economic growth in Tanzania and to examine the effects of interest rates on economic growth in Tanzania. The study used time series data drawn from the National bureau of statistics and the Bank of Tanzania. The study specific objectives were analysed by using the Auto regressive distributed lag model (ARDL). The findings reveal that in the long the exchange rate cause to a significant positive influence on economic growth; the money supply enhances economic growth; the Interest rate was found to lead to a negative effect on economic growth though was not significant. Also, the inflation rate was found to have no significant influence on economic growth in the long run. Additionally, the study concludes that in general, monetary policy has a significant positive effect on economic growth. This study recommend that the government has to make sure that it applies a monetary policy for the better achievement of economic growth. So, this study implies that having a better monetary policy leads to stability and an increase in economic growth. Furthermore, the study also suggested that future studies can use autoregressive integrated moving averages with exogenous variables by incorporating the interest rate and exchange rate as the exogenous variables to prediction the upcoming worth of economic growth.

Keywords:       Interest rates, exchange rate, money supply, Inflation rate, Economic growth.