Effects of monetary policy on private investment in Ethiopia

The main objective of this study is to investigate the effect of monetary policy on private investments in Ethiopia for utilizes annual time-series data from 1980 to 2020. To achieve the goal of this study, Autoregressive Distributed Lag (ARDL) Approach to Bounds test and Error Correction Model are applied in order to investigate the long-run and short-run relationship between the dependent variables and explanatory variables. Data was collected from National Bank of Ethiopia (NBE). The monetary policy we used as indicators are Money Supply (M2), gross domestic saving (GDS), Bank credit (BC), Inflation rate (IR), and Real effective exchange rate (REER) .The finding of the Bounds test shows that there is a stable long run relationship in all variables. The empirical results suggest that money supply exerts a positive and statistically significant effect on private investments, in the long-run, gross domestic saving a positive and statistically significant effect on private investment in the long-run, and bank credit a positive and statistically significant effect on private investment in the long-run.