The Impact of Monetary Policy on Economic Growth in Cambodia

Although monetary policy in Cambodia through its policy instruments is likely to have played an active role in contributing to GDP growth, which averaged about 8% annually during the study period; however, as the economy is affected by De Facto dollarization and most of the transactions are made in cash based, especially in US dollars, so this motivates us to conduct this study to examine whether monetary policy has any impact on the economic growth in Cambodia. Literature review revealed that an increase in money supply boosts economic growth, while decrease in interest rate also contributes in economic growth. Using quarterly time series data from 2000 to 2012, this study applied multiple regression model to examine the impact of money supply and interest rate on GDP growth in Cambodia. The results show that money supply has a positive impact on GDP growth, but the strength of impact is relatively weak, while change in interest rate over the study period did not affect economic growth, meaning that there is no significant effect of interest rate on GDP growth. Thus, the study suggests that implementing one currency policy should be considered so that monetary policy can be used more effectively to control economics activities. Also, because only interest rate for foreign loan is used in the study, it is recommended that in the future, a further study about money supply and GDP should include exchange rate in an analysis.