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Monetary Transmission Mechanism in the East African Community: An Empirical Investigation
Author: Mr. Hamid R Davoodi, S. V. S. Dixit, and Gabor Pinter
Series:
IMF Working Papers
Volume/Issue:
Volume 2013: Issue 039
Language:
English
Publication Date:
06 Feb 2013
DOI:
https://doi.org/10.5089/9781475530575.001
ISBN:
9781475530575
ISSN:
1018-5941
Pages:
59
Keywords:
WP; price level; contractionary monetary policy; exchange rate; central bank; money multiplier; Monetary policy; reserve money; policy rate; vector autoregressions; monetary policy shock; transmission mechanism; monetary policy authority; interest rate channel; rising prices; monetary policy transmission; Monetary base; Central bank policy rate; Vector autoregression; Credit; Exchange rates; Global
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IMF Working Papers describe research in progress by the author(s) and are published to elicit comments and to encourage debate. The views expressed in IMF Working Papers are those of the author(s) and do not necessarily represent the views of the IMF, its Executive Board, or IMF management.
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Do changes in monetary policy affect inflation and output in the East African Community (EAC)? We find that (i) Monetary Transmission Mechanism (MTM) tends to be generally weak when using standard statistical inferences, but somewhat strong when using non-standard inference methods; (ii) when MTM is present, the precise transmission channels and their importance differ across countries; and (iii) reserve money and the policy rate, two frequently used instruments of monetary policy, sometimes move in directions that exert offsetting expansionary and contractionary effects on inflation—posing challenges to harmonization of monetary policies across the EAC and transition to a future East African Monetary Union. The paper offers some suggestions for strengthening the MTM in the EAC.
Cover IMF Working Papers
IMF Working Papers
ISSN:
1018-5941
Publisher:
International Monetary Fund