Monetary Policy and Economic Activity in a Low-Income Country: An Empirical Investigation

Abstract

The paper is an empirical investigation of the output effects of some aspects of monetary policy in a low-income setting. It is argued that the existing political institutions render the fiscal authority dominant over the monetary authority. Using some parsimonious representations of output growth, there is evidence supporting the proposition that unanticipated monetary policy matters. Holding private credit constant, currency in circulation has negative output effects. The conometric evidence is rationalized by invoking choice-theoretic based models of monetary economies that deliver propositions consistent with the evidence.