Abstract
This empirical study investigates Sierra Leone's monetary policy transmission channels using a VAR model from 2011Q1 to 2021Q4, emphasising the interest rate, exchange rate, and credit channels. Rigorous pre-estimation tests and variable transformations were applied to enhance result robustness and credibility. The research evaluates the impact of recent monetary policy and financial sector reforms in Sierra Leone and unveils insights into the dynamics of each of the three transmission channels. Notably, the interest rate channel revealed a delayed and transitory impact of policy rate changes on inflation and economic activity. The exchange rate channel underscored the importance of exchange rate stability in managing inflation, particularly in an import-dependent economy. Furthermore, the credit channel highlighted the challenges of private sector credit expansion amidst substantial government borrowing, urging a balanced approach. Overall, the study contributes to a better understanding of Sierra Leone's monetary policy transmission channels, emphasizing the positive influence of recent institutional, operational, and legal reforms adopted by the Bank of Sierra Leone. More precisely, it presents the need to strengthen the interest rate, credit and exchange rate channels for more effective policy transmission. A key policy recommendation is for the Bank of Sierra Leone to continue its reform agenda, with a focus on enhancing these channels to better achieve its policy objectives.
Published Version
Talk to us
Join us for a 30 min session where you can share your feedback and ask us any queries you have
Schedule a call