THE IMPACT OF MONETARY POLICY ON PRIVATE SECTOR CREDIT AND PRIVATE INVESTMENT IN BOTSWANA
Date
2021-11-16
Authors
MBANJWA, SENZENI
Journal Title
Journal ISSN
Volume Title
Publisher
University Of Bostwana
Abstract
The main objective of this study was to investigate the impact of monetary policy on private sector
credit and private investment in Botswana. The study employed a vector error correction model
on quarterly data for the period 1990Q1 to 2017Q4. The Phillips Perron (PP) test for stationarity
shows that the series are stationary at first difference. The Johansen Cointegration test depicts a
long run relationship of one cointegrating vectors. The vector error correction model indicated
that the monetary policy instrument i.e. bank rate has a negative impact on gross fixed capital
formation in a case when the bank rate rises. This means that in a case of contractionary monetary
policy, the domestic investment would fall by a magnitude of 0.02 per cent and this impact is felt
in a year’s time. On the other hand, expansionary monetary policy would lead to an increase in
domestic investment by 0.02 per cent. The study was able to establish that the impact of credit on
private investment is not statistically significant. Economic policy recommendations such as, the
use of monetary policy to boost domestic investment and monitoring and evaluation of all the
investment projects funded by the Government, were made in consideration of these results