Does informal banking influence monetary policy transmission? Some empirical evidence for Ghana

Abstract

AbstractInformal banking activities have been increasing in many economies in recent times. These activities, though are interrelated with the formal banking activities, fall within a different regulatory framework within which the central bank conducts monetary policy. This has a potential effect on monetary transmission. The study, thus, investigated this issue in the Ghanaian perspective using the local projection approach. Using data sourced from the World Bank and Bank of Ghana databases, the study estimated an incomplete monetary pass‐through for Ghana. Notwithstanding this, informal banking further weakens the pass‐through. Other factors such as non‐performing loans, excess liquidity and the level of financial development were identified to weaken the pass‐through. These findings highlight the need for a prudent monetary framework that can address the challenge informal banking bring forth in monetary policy implementation.