The impact of financial development on the effectiveness of monetary policy

Student: Nguyễn Phan Trúc Phương, VNP 25

Supervisor: Prof. Dr. Nguyễn Trọng Hoài

Abstract:

In recent years, there have been many theoretical and empirical studies on the impact of financial development in promoting economic growth and stability. This study aims to determine the effectiveness of the monetary policy on economic growth and stability affecting
the development of financial institutions and financial markets as measured across three aspects of depth, access, and efficiency. In this paper, that relationship is analyzed based on panel data for 144 countries from 1990 to 2017. The results show that the effectiveness of the
monetary policy on output and inflation has a significantly negative effect on financial development indicators. In particular, the paper finds large differences between the three levels of income in terms of the impact of financial development on the effects of money growth on output and inflation. This paper provides an evidence-based approach to the influence of different aspects of financial development on the effectiveness of the monetary policy on growth and inflation between income levels and regions.