DESCRIPTION OF DATA AND VARIABLE DEFINITIONS
DEFINITION OF VARIABLES.
The study investigates the effect of monetary policy on household consumption in Cameroon between 1980 and 2010. The objective of the study is to find out the relationship between monetary policy on household consumption in Cameroon and to recommend policies to improve on household consumption in Cameroon. The study uses secondary time series annual data from World Bank Group Development indicators for Cameroon.
The work uses economic model showing household final consumption expenditure as a function of monetary and quasi money growth, real interest rate, total reserve and Gross National Income per capita. Given the trends of the variables estimated results indicate that Total reserve as a ratio of GNP and GNI per capita positively and significantly affect household consumption. Monetary and quasi monetary growth has a negative impact on household consumption. Policy makers therefore need to encourage Total reserve and GNI per capita. It is therefore strongly recommended that instrument of monetary policy should be used in the economy as means of influencing household consumption.
Monetary policy is the process by which monetary authority of a country control the supply of money often targeting a rate of interest for the purpose of promoting economic growth and stability. The official goals usually include relative stable price and low unemployment. It is the process by which the government, central bank, or monetary authority of a country control; the supply of money, availability of money, cost of money or rate of interest to attain a set of objectives oriented towards the growth and stability of the economy.
Amongst the instruments used in influencing the pace of economic activities in Cameroon are monetary instruments using monetary policies such as interest rates, bank rates, open market operations etc. to influence the supply of money.
However, the effectiveness of these monetary policy in accelerating household consumption in most of the CEMAC Region especially Cameroon is wanting. It is against this backdrop that this research study attempts to elucidate on how monetary policy has been influencing household consumption in Cameroon.
- Does monetary policy through its attributes such as real interest rate, total reserve and GNI per capita have a significant effect on household consumption in Cameroon?
- Whether money and quasi money growth has a relationship with household consumption in Cameroon?
OBJECTIVE OF THE STUDY
The main objective of the study is to investigate the effect of monetary policy on household consumption in Cameroon. Some specific objectives can be used to achieve this goal. These include
- To evaluate the role played by money and quasi money growth on household consumption in Cameroon.
- To analyze the relationship between real interest rate and household consumption in Cameroon.
- To assess the effect of GNI per capita on household consumption in Cameroon
- To recommend appropriate monetary policies to improve on household consumption in Cameroon.
Ho: Monetary policy does not affect rural household consumption in Cameroon
Cameroon's economy is one of the fastest growing in sub-Saharan Africa. Oil extraction and agriculture, especially the cultivation of cocoa, are the most important sectors of the economy. Yet, in spite of abundance of natural resources, a third of the population lives below the poverty line. Red tape, high taxes, corruption and inequitable distribution of income are the main obstacles for Cameroon's further expansion.
In order to unravel such issues related to household consumption and monetary policy numerous studies have attempted to identify the effect of monetary policies. For instance Owyang and Walls (2004) have looked at the USA While Ramaswamy and Slok (1998) and Clement et al (2001) have studied European Countries. Their findings in general suggest different output effect in response to a common policy shock. Odior and Banuso (2011) explore the household welfare effect of macroeconomic volatility on private consumption expenditure in Nigeria. They established the extent to which volatility of macroeconomic does lead to a decline in consumption expenditure.
Burney et al (1991) examined the household expenditure in Pakistan in the period 184-1985 and the interpretation shows that consumption expenditures in the urban areas are higher than in the rural areas. Cassar and Cordina (2001) studied the behavioral trends of private consumption expenditure in Malta. They found out that the consumption expenditure in Malta has risen at a rapid in excess of increase in income. The rapid increase in consumption is believed to have been caused by factors such as boom in property prices, financial liberalization and demographic factors.
Area of studies
The area of studies used in the studies is Cameroon, which is one of the central African countries found in the gulf of Guinea. With a surface area of 475442 square kilometers, it is surrounded by neighboring countries like Chad to the North, the Central African Republic to the east, Equatorial Guinea, Gabon and The republic of Congo Brazzaville to the south and Nigeria to the west (Aaron, 1999)
The economy of Cameroon is based on the three traditional sectors, agriculture industry and services. The agricultural sector which is made up of crop cultivation, livestock, fishery and forestry is the main stay of the economy accounting for about 29% of GDP, employing about 50% of the workforce of the country and generating more than half of the export earnings. Meanwhile the petroleum sector accounts for about 31% of the GDP of government revenue and export receipts employing about 15% of the working population.
DESCRIPTION OF DATA AND VARIABLE DEFINITIONS
Data for the studies is from secondary sources which include World Bank group annual Development reports, and Cameroon department of Demography and statistics.
The model used is the Keynesian consumption function which expresses the relationship between the dependent variables and the independent variables.
The data employed are time series covering the period of 1980 to 2010. The choice of the period is to better account for the monetary policy on household consumption in Cameroon amidst the series of economic and monetary phenomena that have taken place within the economy such as the economic crisis of late 1980s and the devaluation of the CFAF in the early 1990s respectively.