Monetary policy transmission mechanism in East Africa: a comparative study of Tanzania, Kenya and Uganda

Thumbnail Image
Journal Title
Journal ISSN
Volume Title
University of Dar es Salaam
The study makes a comparative analysis of two critical issues of interest in monetary policy: the monetary transmission mechanisms and the time policy action takes to have some impact on prices. The study was motivated by the fact that economies in the East African region are heading toward the monetary union stage which requires inter alia a status of effectiveness of monetary policy in each member country and for the region as a whole, plus a better understanding of channels through which monetary policy influences are transmitted to real economy. The variables used in the study include, interbank interest rate, average Treasury bill rate, reserve money, lending rate, exchange rate and the Consumer Price Index (CPI). Results from the estimated Recursive VAR indicate that exchange rate is the dominant monetary policy transmission channel in Tanzania and Uganda. The interest rate channel though existed was weak. In terms of timing, it was found that it takes on average, 7 and 6 months respectively for the policy innovations to have impact on price level in Tanzania and Uganda. The lending rate was found to be the dominant channel in Kenya and in terms of timing, 9 months was the average time for it to have an impact on goal variables. These results imply the following; one, the possibility for the East Africa (E.A) Countries of shifting from monetary aggregate focused kind of monetary policy framework to financial price based; second, monetary policy is still the main instrument to rely upon for the short-run economic stabilization. In the context of EAC Monetary Union (EAC-MU), the key implication is the need for the gradual process of moving to EAC-MU.
Available in print form, East Africana Collection, Dr. Wilbert Chagula Library, Class mark (THS EAF HG1342.M552)
Monetary policy, Africa, East
Mkai, H. A. (2016) Monetary policy transmission mechanism in East Africa: a comparative study of Tanzania, Kenya and Uganda, Doctoral dissertation, University of Dar es Salaam, Dar es Salaam