Empirical Study on the Effectiveness of Monetary Policy and Financial Inclusion Using an Integrated Model

Abstract

The purpose of this research is to estimate the manipulation of fintech in monetary policy transmission. Using an integrated model approach, this study examines if and how finance and investment influence the efficacy of monetary policy transmission. Technological advancements and global business have altered the financial system's dynamics during the last decade. As a consequence, marketing has turned to mobile phones, the Internet, and digital currencies to expedite transactions, assist in economic growth and development and run their operations. This course of action has contact on the monetary policy transmission mechanism. To investigate how the consequences of monetary policy shocks alter with regional-level FinTech adoption and using Rolling window Auto-Regressive Distributed Lag (RARDL), we utilize an interacted panel vector autoregression model (IPVARM) and a Vector Error Correction Model (VECM). This research uses a variety of analytic approaches, including descriptive statistical analysis, baseline regression analysis, and panel unit root test. The findings show that both in the medium term and in the immediate future, the amount of financial inclusion influences the inflation rate as a substitute for monetary policy efficacy for public administration. The crash of financial inclusion shocks on inflation, on the other hand, is not lasting. Fintech, on the other hand, has only a short-term impact on inflation rates.