Does Monetary Policy Matter for Economic Growth in Tanzania? A Critical Analysis

Abstract

This paper examines monetary policy's influence on Tanzania's economic growth by utilizing the Autoregressive Distributed Lag model  (ARDL). Analysing yearly time series data from 1970 to 2022, the study offers empirical insights into whether monetary policy impacts  economic growth in Tanzania. The empirical findings indicate that in the long run, there is a negative relationship between the growth of  monetary aggregates (base money M0 and broad/near money M2) and economic growth. There is also a positive relationship between  the expansion of the broader money supply (M3) and the growth of the economy in Tanzania. However, in the short run, the paper  discovers a positive relationship between base money (M0) and economic growth and a negative relationship between discount window  rate and economic growth. The paper recommends re-assessment of the existing monetary policy frameworks in light of the observed  negative relationship, continuing backing for a conducive monetary policy environment to facilitate the positive connection between  broader money supply (M3) and economic growth, and considering adjusting the discount window rate to bolster short-time economic  growth as well as lowering the discount window rate since it has the potential for incentivizing borrowing and investment thereby  stimulating economic activities in the short run.