Impact of the Monetary Policy on the UAE Economic Growth (Post Financial Crises)

Abstract

The monetary policy plays an act role in a country’s economic growth if it is implemented effectively to maintain price stability and to keep inflation rate at minimum level. Such goals are achieved through a process by which monetary authority of a country controls the supply of money, availability of money, and cost of money or interest rate. Monetary policy is directly associated with the changes in the economy. Thus, the primary objective of the United Arab Emirates (UAE) is promoting the economic growth through its tools, i.e., interest rate, inflation, and money supply to stabilize the appealing economic condition level within the country. The main focus of the paper is to investigate the role of monetary policy in the UAE for the last 10 years on the economic growth of the country. So, a descriptive analysis of the influences of the monetary policy on the Gross Domestic Product (GDP) has been carried out to measure the correlation between them. The data have been obtained from different sources. Information on the Gross Domestic Product and money supply were extracted from the Globe Development Indicators Information (2018). Whereas, the information on the interest rates and inflation are obtained from the official web site of the UAE Central Bank. The analysis outcomes reveal that there is a positive correlation between money supply and the economic growth in the UAE, but it was insignificant. So, there is insufficient evidence supporting this relationship. Also, it has been found that if money supply changes, the interest rate will not change tangibly to enhance the investment, and thus, the economic growth in the country since the monetary policy in the UAE is not totally independent. However, the analysis outcomes showed inverse impact of the interest rate on the GDP with significant evidence. The same insignificant result has been found on the impact of the inflation rates on the GDP. Therefore, the impact of monetary policy on the economic growth was insignificant except for the interest rates.