April 2016 Vol. 4 No. 2

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Original Research Article

An empirical analysis of the effects of monetary policy on economic growth in Cameroon

Ernest Musomo Atangana^1*, Mairamou Soureya Dodo Adamou² and Pendie Kelvin Njie²

¹Cameroon Institute of Applied Sciences Buea, Cameroon
²Pan African Institute of Development, Buea Cameroon

Email: atanagaernest@yahoo.com

Accepted April 19, 2016

Abstract

This study is designed to empirically examined the cause and effect relationship between monetary policy channels and economic growth in Cameroon using time series data from 1980-2014, sourced from the United Nations Commodity Trade data base, Cameroon Finance Bill and World Development Indicators. Estimation technique necessitated by the study was the Vector Autoregressive (VAR) estimation technique which was able to capture the cause and effect relationship of both the independent and dependent variables and between the dependent variables too. Results from the study showed that interest rate and consumer price index negatively and significantly affect economic growth in both the first and second lag years while broad money, in a two year lagged period negatively affect economic growth but positively related in the first lagged. Both results were significant. From the study thus, we were able to recommend policies to reduce interest rates and thus make loans cheap, measures to reduce prices of goods and services available to average consumers and also ways to control the quantity of liquid cash available in the economy; which is dependent on the economic situation of the country. These will thus stimulate economic activities and subsequently growth for Cameroon.

Keywords: Broad Money, Consumer Price Index, Interest Rate, Liquid Cash, Monetary Policy Channels, Monetary Policy