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Monetary Policy Impact on Macroeconomic Performance in Tanzania: Empirical Approach

In: Monetary and Financial Systems in Africa

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  • Jehovaness Aikaeli

    (University of Dar es Salaam)

Abstract

The chapter looks into monetary policy impact on macroeconomic performance in Tanzania, with a particular focus cast on price stability. The structural vector error correction (SVEC) model is used to analyze data from Tanzania for the period 1966–2019. The results show that monetary policy in the country is effective in terms of its single objective of price stability. The reason is that both the SVEC impulse responses and error variance decomposition show that most of the variations in the price level resulted from the policy rate, whose proxy is the discount rate, the Bank of Tanzania lending rate that anchors interest rates in the country. Thus, monetary policy significantly affects price developments. This scenario alludes to inflation as a monetary phenomenon. Therefore, the Bank of Tanzania influences macroeconomic performance by setting and monitoring the implementation of monetary policy in the country. The Bank of Tanzania undertakes reserve money programming as its monetary policy framework. However, because there is a significant relationship between the policy rate and price in the country, an important implication is that Tanzania can successfully use inflation targeting as its monetary policy framework for better macroeconomic results.

Suggested Citation

  • Jehovaness Aikaeli, 2022. "Monetary Policy Impact on Macroeconomic Performance in Tanzania: Empirical Approach," Springer Books, in: Aloysius Ajab Amin & Regina Nsang Tawah & Augustin Ntembe (ed.), Monetary and Financial Systems in Africa, chapter 0, pages 63-80, Springer.
    • Handle: RePEc:spr:sprchp:978-3-030-96225-8_3
    DOI: 10.1007/978-3-030-96225-8_3
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