Int. J. of Monetary Economics and Finance   »   2015 Vol.8, No.4

 

 

Title: The impact of financial inclusion on monetary policy effectiveness: the case of Malawi

 

Author: Angella Faith Lapukeni

 

Address: Banking and Currency Management, Reserve Bank of Malawi, P.O. Box 30063, Capital City, Lilongwe 3, Malawi; MA Economic Policy Management (EPM) Program, Department of Economics, University of Zambia, P.O. Box 32379, Lusaka, Zambia

 

Abstract: Financial inclusion is critical as it leads to an improved reach and effectiveness of monetary policy. The paper used quarterly data for Malawi to conduct empirical analysis of the impact of financial inclusion on monetary policy effectiveness. Using vector autoregression model (VAR), granger causality tests, and basic trend analyses, the study revealed consistent trends and some causality between financial inclusion indicators and inflation: the indicator for monetary policy effectiveness. The results further showed that money supply had an inverse relationship with inflation contrary to economic theory. The findings suggest that this is because the accounting of monetary aggregates does not include the activities of those outside the banking system. With this in view, the study concludes that financial inclusion will enable monetary policy to extend its reach to the financially excluded and aid policy makers to make better predictions of movements in inflation using monetary statistics.

 

Keywords: financial inclusion; financial exclusion; monetary policy; VAR model; vector autoregression model; inflation; Malawi; monetary aggregates; formal financial services; policy effectiveness; monetary statistics.

 

DOI: 10.1504/IJMEF.2015.073229

 

Int. J. of Monetary Economics and Finance, 2015 Vol.8, No.4, pp.360 - 384

 

Available online: 27 Nov 2015

 

 

Editors Full text accessAccess for SubscribersPurchase this articleComment on this article