| dc.description.abstract | Due to the neutrality of money debate, empirical studies have been carried out in different countries to analyse the effect of money on economic growth. The bone of contention has been whether a monetary variable can have an effect on a real variable. This study empirically analysed the relationship between monetary stock and the GDP (gross domestic product) in Kenya between the years 2000 and 2009. The East African countries report on the monetary aggregate M3. This study analysed M3 after deflating it for inflation and the real GDP. A dummy variable consisting of drought, floods, political risk and the global economic downturn was included in the model as a proxy for adverse real shocks, both domestic and global.
Quarterly data on real M3, real GDP and adverse real shocks for the period 2000-2009 underwent various tests. Stationarity tests were conducted using Augmented DickeyFuller method. Engle Granger method was applied to test for co-integration and causality among the variables. The results obtained showed that the coefficient of monetary stock was statistically significant but the one for adverse real shocks was not. This implied that the shocks did not spur any change to the GDP. Monetary stock was found to be positively related to GDP. The causality test results revealed that there was a uni-directional causality between monetary stock and GDP with causality running from GDP to monetary stock.
The findings suggest that monetary stock in Kenya during the period of study did not , cause GDP. This could be explained by the fact that households in Kenya have adopted M-pesa, which is a way of settling financial transactions via the cell-phone. Money is transferred from one cell-phone to another without involving banks. It is therefore critical for the monetary policy committee not to include economic growth as an ultimate target to achieve their goals through monetary policy. | en_US |
