An empirical investigation of the impact of monetary policy on economic growth in Zambia

Abstract

PURPOSE: The aim of this study was to investigate the impact of monetary policy on the real sector and to assess the effectiveness of various monetary policy transmission channels in Zambia.

METHODOLOGY: The Johansen cointegration approach, Error Correction Model (ECM), and Granger causality test were undertaken to achieve the study objectives.

FINDINGS: The study results reveal that economic growth proxied by Gross Domestic Product (GDP) in Zambia is negatively affected by lending rates, inflation, and an increase in private sector credit, while exchange rate and deposit rates were found to have a positive impact on the other hand. These results confirm the presence of exchange rate and credit channels of monetary policy transmission in Zambia.

ORIGINALITY/VALUE: The study contributes to the theoretical and empirical literature on the impact of monetary policy on the real sector. Further, the study provides, through the results of the study, the effectiveness of various monetary policy transmission channels in Zambia. Therefore, the study is part of the studies the Central Bank and academic institutions and research think tanks can make reference to during further research and practice.