EXAMINING HOW MONETARY POLICY EFFECTS THE PRODUCTIVITY GROWTH IN SOMALIA

Abstract
The purpose of this study is to analyze the effectiveness of monetary policy to currency value in
Somalia. The study used ordinary least square method to estimate the parameters. Theory used is
Purchasing Power Parity (PPP) with quantity theory of money applying Dornbusch model. Time
series data collected from the World Development Indicators of 45 observations was employed.
Variables in the study are exchange rate that represents the explained variable whilst independent
variables are: foreign direct investment (FDI), money supply and balance of trade (BoT). The study
found that money supply affects positively to exchange rate. Study also demonstrated that FDI has
bigger influence on the Somali exchange rate thereby the Central Bank of Somalia (CBS) should
have more concern on the foreign inflows for currency and exchange rate stabilization.