The Impact of Monetary Policy on Economic Growth in Lower Middle-Income Countries.

Abstract

This study explored the impact of monetary policy on the economic growth of lower-middle-income countries. Given the recent upheavals in global economic changes and post-COVID-19 pandemics, investigating their short- and longterm impacts on economic growth is essential. This study used panel data for 30 lower-middle-income countries from 2002 to 2023. The estimated model factors in the effects of domestic credit to the private sector by banks (DCPS), Broad money (M2), and Official exchange rate (Ex). The Panel Autoregressive Distributed Lag (ARDL) estimations reveal that domestic credit to the private sector by banks and official exchange rate negatively impact economic growth. In contrast, broad money positively impacts economic growth in the long run. Conversely, broad money and official exchange rate negatively impact economic growth, while banks' domestic credit to the private sector positively impacts economic growth in the short run. Different estimation techniques confirm that these findings impact both the long and short run. The study highlights the significance of monetary policies in fostering sustainable economic growth and provides policy recommendations to enhance the effectiveness of monetary interventions in lower-middle-income countries.