Monetary policy effectiveness in the advent of mobile money activity: Empirical evidence from Ghana

Abstract

Financial development impacts a country’s economic growth and development. Due to this, many nations have sought new ways to bring about financial sector development. For developing economies, innovations in the financial sector are a sure bet for the development of financial inclusion. Mobile money is one of them. However, as the financial sector innovate, the Central Bank may lose control, rendering monetary policy ineffective. Therefore, this study examines one such innovation’s effect on monetary policy effectiveness. Using SVAR and monthly data spanning from January 2012 to December 2018, the study found that monetary policy becomes less effective under mobile money growth. The study further revealed that policy rates respond to mobile money growth in Ghana. In conducting monetary policy in Ghana, the study recommends that the monetary policy authority includes mobile money activity.

Keywords:

• Mobile money
• monetary policy effectiveness
• monetary policy
• output
• inflation
• SVAR

PUBLIC INTEREST STATEMENT

Over the past decades, mobile money usage and other technologies that facilitate financial transactions have flooded developing economies, of which Ghana is not an exception. These fintechs have led to the provision of financial services like savings, insurance, access to credit among others, especially for the poor and financially excluded from the formal banking system. These developments will have implications for the monetary policy of the central bank. To this end, the study focused on the effect of mobile money on the effectiveness of monetary policy. The results from the study suggest that, mobile money activities in Ghana affect the conduct of monetary policy in Ghana. Thus, monetary policy becomes less effective when money experiences growth in the value of transactions. Therefore, the monetary authority must take a closer look at the mobile money activities and accommodate them in the framing of monetary policy for Ghana.

Disclosure statement

No potential conflict of interest was reported by the author(s).

Additional information

Funding

The authors received no direct funding for this research.

Notes on contributors

Emmanuel Agyapong Wiafe

Emmanuel Agyapong Wiafe a Lecturer at the Department of Economics, School of Liberal Arts and Social Sciences, Ghana Institute of Management and Public Administration (GIMPA), Achimota, Ghana. His main areas of expertise are development economics, applied econometrics and macroeconomic issues for developing countries. The current research on mobile money aligns with the researcher’s works on impact of interoperability payment, mobile payment systems macroeconomic developments.

Christopher Quaidoo

Christopher Quaidoo, is a Lecturer at the Department of Banking and Finance, University of Professional Studies, Accra, Ghana. His main research interests are in the fields of corporate finance, monetary economics and development economics.

Samuel Sekyi

Samuel Sekyi is a Senior Lecturer of Economics at SD Dombo University of Business and Integrated Development Studies, Ghana. His main areas of expertise and interest are in the fields of Microeconometrics, health economics, development economics, agricultural economics and finance.