Nexus between Monetary Policy and Financial Inclusion in Nepal: An Autoregressive Distributed Lag Approach

Authors

DOI:

https://doi.org/10.58665/njiss.82

Keywords:

ARDL, cash reserve ratio, financial inclusion, monetary policy, Nepal

Abstract

Purpose: This study examines the dynamic relationship between monetary policy instruments and financial inclusion in Nepal, analyzing how key monetary policy tools affect access to financial services.

Design/Methodology/Approach: This study employs an Autoregressive Distributed Lag approach (ARDL) bounds testing approach on annual time series data from 1999 to 2024 to examine both short-run dynamics and long-run relationships between monetary policy instruments and financial inclusion in Nepal. The Financial Inclusion Index, constructed via Principal Component Analysis from deposit-to-GDP and creditto-GDP ratios, serves as the dependent variable, while key monetary policy tools and urban population share are included as explanatory variables.

Findings: The ARDL bounds test confirms significant long-run relationships between monetary policy instruments and financial inclusion. Cash Reserve Ratio (CRR) exhibits a significant negative impact, while Standing Liquidity Facility (SLF) shows a marginally significant negative effect. Policy rate demonstrates no significant long-run impact. Urban population shows strong positive relationships.

Implications: Policymakers should adopt coordinated approaches incorporating financial inclusion objectives into monetary frameworks, utilizing differential reserve requirements and targeted rural infrastructure investments.

Originality/value: This research uniquely applies ARDL methodology to examine the monetary policy-financial inclusion nexus in Nepal, providing novel empirical evidence on differential impacts of specific monetary instruments and contributing to the limited South Asian financial inclusion literature.

JEL Classification: E52, G21, G28, O16, R11

Author Biographies

Gyan Mani Adhikari, Associate Professor, Central Department of Management, Tribhuvan University, Nepal.

Gyan Mani Adhikari is an Associate Professor of Economics at Tribhuvan University’s Central Department of Management. He specializes in microeconomics, macroeconomics, and rural development, with extensive publications in economics education and policy analysis, contributing significantly to academic discourse across Nepalese universities.

Mahananda Chalise, Professor and Dean, Faculty of Management, Tribhuvan University, Nepal.

Prof. Mahananda Chalise, Dean of the Faculty of Management and Professor of Strategic & Knowledge Management at Tribhuvan University, excels in knowledge management, enterprise development, and higher education research. Renowned for his academic leadership and commitment to institutional development, he actively fosters international collaborations, driving impactful reforms and advancing the global stature of Nepalese academia.

Santosh Chhetri, Assistant Professor, Tribhuvan Multiple Campus, Tribhuvan University, Nepal.

Santosh Chhetri, Assistant Professor of Economics at Tribhuvan University with an M.Phil. in Economics, specializes in econometrics, macroeconomics, and development research. A published scholar on wage differentials, trade, and economic growth, he brings strong expertise in advanced statistical analysis to inform impactful economic insights and policy discussions.

Krishna Bahadur Karki, Assistant Professor, Tribhuvan Multiple Campus, Tribhuvan University, Nepal.

Krishna Bahadur Karki serves as an Assistant Professor of Economics at Tribhuvan Multiple Campus, where he teaches macroeconomics to undergraduate and graduate students. His research expertise centers on survey data analysis within the Nepalese context, contributing to the understanding of economic patterns and trends in the country. Through his academic work, he combines theoretical economic knowledge with practical research methodologies to examine Nepal's economic landscape. Contribution: Review, data cleaning, resources.

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Published

2025-07-28

How to Cite

Adhikari, G. M. ., Chalise, M. ., Chhetri, S. ., & Karki, . K. B. . (2025). Nexus between Monetary Policy and Financial Inclusion in Nepal: An Autoregressive Distributed Lag Approach. Nepalese Journal of Insurance and Social Security, 8(1), 87–94. https://doi.org/10.58665/njiss.82

Issue

Vol. 8 No. 1 (2025)

Section

Articles