The Nexus between Monetary Policy Transmission Mechanisms and Economic Development in Sierra Leone for the Period (1993 – 2023)
Authors: Balla Marah Moses , John Kellie Aiah 
Published: November 2024

This research investigated the transmission mechanisms of monetary policy and their impact on economic development in Sierra Leone from 1993 to 2023, aiming to evaluate their effectiveness in achieving key macroeconomic goals such as employment generation, balance of payments stability, and maintaining a relatively stable general price level. The study sought to understand how these transmission mechanisms influence economic development in Sierra Leone, particularly at a time when the country is grappling with significant macroeconomic challenges, including high unemployment, price volatility, and elevated inflation rates. Data spanning from 1993 to 2023 were collected from the World Bank Economic Indicators and Bank of Sierra Leone Statistical Bulletin through a purposive sampling approach. The research employed a blend of ex- post facto, longitudinal, descriptive, causal-effect, and correlation research designs. The statistical analyses conducted included the Augmented Dickey Fuller (ADF) unit root test, Granger causality test, ordinary least squares multivariate regression, generalized method of moments, Johansen co-integration, and vector error correction mechanisms. The findings revealed that capital stock (coefficient of 0.13), money supply (0.17), migrant remittances (6.5), and exchange rate (0.08) exhibited significant and positive long-term relationships with Sierra Leone economic development during the observed period. Conversely, the monetary policy rate (0.10) and credit to the private sector (0.30) demonstrated positive yet insignificant effects on economic development. Interest rates (-0.71) were found to have a significant negative relationship, while the inflation rate (-0.03) was negatively related but not significant. The study concludes that monetary policy transmission mechanisms have both short-term and long-term relationships with economic development in Sierra Leone, underscoring the importance of their effective implementation. Monetary policy transmission mechanisms have proven to be effective instruments for fostering economic development in Sierra Leone. It is advisable for both the Ministry of Finance and Bank of Sierra Leone, as the regulatory authorities, to consistently ensure an optimal combination of monetary policy tools. This approach is essential for significantly impacting economic activities, encouraging investments, and ultimately enhancing macroeconomic stability in the country. Furthermore, these regulatory bodies should regularly evaluate the monetary policy rate and the credit available to investors to create a favorable investment and business environment in Sierra Leone. Additionally, effective policies should be implemented to increase remittance inflows into Sierra Leone, directing investments towards productive uses rather than consumption, which may lead to inflationary pressures. The insights gained from this study contribute to the existing literature on economic development and the mechanisms of monetary policy transmission. The dynamic estimation technique, akin to the Generalized Method of Moments, effectively assessed the endogeneity between monetary policy variables and economic development in Sierra Leone.