The Impact of Monetary Policy on Economic Growth in Libya during the Period (2024–1990)

Abstract

This study aimed to analyze and measure the impact of monetary policy instruments (exchange rate, money supply, and interest rate) on economic growth rates in Libya during the period (1990-2024). The study relied on the Autoregressive Distributed Lag (ARDL) methodology and the Bounds Test for cointegration, in addition to the Error Correction Model (ECM) to determine the speed of adjustment. The study reached several key results, most notably: the existence of a stable long-term equilibrium relationship between monetary policy and growth, with a superior ability of the economy to correct equilibrium deviations at an adjustment speed of (129%) annually. The results also showed that the exchange rate is the most effective channel with a positive impact on growth, while the interest rate recorded a non-significant effect due to structural constraints in the Libyan banking system. The study recommended the necessity of directing monetary policy toward ensuring exchange rate stability as a primary entry point to stimulate investment, and improving the efficiency of financial and banking markets to activate monetary policy transmission channels toward real economic sectors.