Financial Inclusion, Monetary Policy Effectiveness, and Economic Growth,in Ethiopia and Sub-Saharan Africa

This thesis investigates the interplay between financial inclusion, economic growth, and the effectiveness of monetary policy in a dynamic economic context. Utilizing a New Keynesian Dynamic Stochastic General Equilibrium (NK-DSGE) model, the research incorporates financial heterogeneity by distinguishing between financially included and excluded households. The analysis explores how financial inclusion mitigates macroeconomic volatility and enhances household welfare while addressing key challenges in developing economies like Ethiopia, where over 54.1% of adults remain financially excluded. The findings reveal that financial exclusion significantly diminishes the effectiveness of monetary policy. Financially included households, with access to credit, savings, and investment opportunities, exhibit better consumption smoothing and labor optimization in response to monetary and technology shocks. Conversely, excluded households face heightened vulnerability, experiencing sharper consumption and welfare losses during economic shocks. Empirical evidence also underscores the role of financial inclusion in fostering economic resilience and growth. Increased access to financial services stimulates investment, enhances productivity, and bridges regional and gender disparities, particularly benefiting rural areas and female-headed households. This study emphasizes the critical role of financial inclusion as a policy tool for enhancing monetary policy transmission and promoting inclusive growth. It offers valuable insights for policymakers aiming to improve financial accessibility and macroeconomic stability in emerging economies