Exchange rate pass through, cost channel to monetary policy transmission, adaptive learning, and the price puzzle

2017 ◽  
Vol 48 ◽  
pp. 69-82 ◽  
Author(s):  
Syed Zahid Ali ◽  
Sajid Anwar
Keyword(s):  
Monetary Policy ◽  
Exchange Rate ◽  
Adaptive Learning ◽  
Monetary Policy Transmission ◽  
Cost Channel ◽  
Price Puzzle ◽  
Policy Transmission ◽  
Pass Through ◽  
Exchange Rate Pass Through

scholarly journals MONETARY TRANSMISSION OF PERSISTENT SHOCK TO THE RISK PREMIUM: THE CASE OF INDONESIA

2011 ◽  
Vol 13 (4) ◽  
pp. 435-468
Author(s):  
Akhis R. Hutabarat
Keyword(s):  
Monetary Policy ◽  
Exchange Rate ◽  
Interest Rate ◽  
Risk Premium ◽  
Nominal Exchange Rate ◽  
Monetary Transmission ◽  
Cost Channel ◽  
Long Run ◽  
Pass Through ◽  
Exchange Rate Pass Through

This paper investigates the relative importance of monetary transmission channel to inflation of passing persistent shock to the risk premium. The findings show that nominal exchange rate depreciation, triggered by a more persistent shock to interest risk premium, worsens the state of the economy in the short- and long-run. Such distinctive shocks effect is transmitted through the economy that typifies lack of response of consumer price disinflation to interest rate tightening caused by high real rigidity, strong cost channel of interest rate, strong cost channel of exchange rate pass-through and weak demand-side channel of exchange rate pass-through. This study suggests a proper monetary policy response, which is the smallest interest rate increases within the feasible set of monetary policy responses that the model recommends, to minimize the adverse effects of the shocks.Keywords: Exchange rate, Balance of Payment, Monetary transmission and policy, Dynamic General Equilibrium.JEL Classification: F41; E52; D58

scholarly journals MONETARY TRANSMISSION OF PERSISTENT SHOCK TO THE RISK PREMIUM: THE CASE OF INDONESIA

2011 ◽  
Vol 13 (4) ◽  
Author(s):  
Akhis R. Hutabarat
Keyword(s):  
Monetary Policy ◽  
Exchange Rate ◽  
Interest Rate ◽  
Risk Premium ◽  
Nominal Exchange Rate ◽  
Monetary Transmission ◽  
Cost Channel ◽  
Long Run ◽  
Pass Through ◽  
Exchange Rate Pass Through

This paper investigates the relative importance of monetary transmission channel to inflation of passing persistent shock to the risk premium. The findings show that nominal exchange rate depreciation, triggered by a more persistent shock to interest risk premium, worsens the state of the economy in the short- and long-run. Such distinctive shocks effect is transmitted through the economy that typifies lack of response of consumer price disinflation to interest rate tightening caused by high real rigidity, strong cost channel of interest rate, strong cost channel of exchange rate pass-through and weak demand-side channel of exchange rate pass-through. This study suggests a proper monetary policy response, which is the smallest interest rate increases within the feasible set of monetary policy responses that the model recommends, to minimize the adverse effects of the shocks.Keywords: Exchange rate, Balance of Payment, Monetary transmission and policy, Dynamic General Equilibrium.JEL Classification: F41; E52; D58

Bank behavior, incomplete interest rate pass-through, and the cost channel of monetary policy transmission

2009 ◽  
Vol 26 (6) ◽  
pp. 1310-1327 ◽  
Author(s):  
Oliver Hülsewig ◽  
Eric Mayer ◽  
Timo Wollmershäuser
Keyword(s):  
Monetary Policy ◽  
Interest Rate ◽  
Monetary Policy Transmission ◽  
Cost Channel ◽  
Policy Transmission ◽  
Bank Behavior ◽  
Pass Through ◽  
The Cost

Sukuk and monetary policy transmission in Indonesia: the role of asset price and exchange rate channels

2021 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Suriani Suriani ◽  
M. Shabri Abd. Majid ◽  
Raja Masbar ◽  
Nazaruddin A. Wahid ◽  
Abdul Ghafar Ismail
Keyword(s):  
Monetary Policy ◽  
Exchange Rate ◽  
Interest Rates ◽  
Asset Price ◽  
Transmission Mechanism ◽  
Monetary Policy Transmission ◽  
Content Type ◽  
Policy Transmission ◽  
Monetary Policy Transmission Mechanism

Purpose The purpose of this study is to empirically analyze the role of sukuk in the monetary policy transmission mechanism through the asset price and exchange rate channels in the Indonesian economy. Design/methodology/approach Using the monthly data from January 2003 to November 2017, this study uses a multivariate vector error correction model causality framework. To examine the role of sukuk in the monetary policy transmission mechanism through the asset price channel, this study uses the variables of consumption, inflation, interest rates, economic growth and the composite stock price index. Meanwhile, to examine the role of sukuk in the monetary policy transmission mechanism through the exchange rate channel, this study used variables of inflation, interest rates, economic growth, foreign investment and exchange rate. Findings This study documented that sukuk has no causal relationship with inflation through asset price and exchange rate channels. Nevertheless, sukuk has a bidirectional causal relationship with economic growth through asset price and exchange rate channels. Sukuk is also documented to have a causal relationship with monetary policy variables of interest rate and stock prices through asset price and exchange rate channels. Finally, a unidirectional causality is recorded running from the exchange rate to sukuk in the exchange rate channel. Research limitations/implications The finding of independence of the sukuk market from interest rates provides evidence that the trading of the sukuk in Indonesia has been in harmony with the Islamic tenets. Practical implications The relevant Indonesian authorities need to enhance both domestic and global sukuk markets as part of efforts to promote the sustainability of Islamic capital market development in Indonesia. Originality/value To the best of the authors’ knowledge, this study is among the first attempts to empirically investigate the role of sukuk in monetary policy transmission through asset price and exchange rate channels in the context of the Indonesian economy.

Exchange Rate Pass-Through Effect and Monetary Policy in Russia

2008 ◽  
pp. 115-138
Author(s):  
Victoria V. Dobrynskaya ◽  
Dmitry V. Levando
Keyword(s):  
Monetary Policy ◽  
Exchange Rate ◽  
Pass Through ◽  
Exchange Rate Pass Through

Exchange rate pass-through and monetary policy in Croatia

2004 ◽  
Vol 32 (3) ◽  
pp. 426-444 ◽  
Author(s):  
Andreas Billmeier ◽  
Leo Bonato
Keyword(s):  
Monetary Policy ◽  
Exchange Rate ◽  
Pass Through ◽  
Exchange Rate Pass Through

Exchange Rate Pass-Through: A Case Study of a Small Open Economy

2007 ◽  
Vol 7 (3) ◽  
pp. 1850112 ◽  
Author(s):  
Olajide Oladipo
Keyword(s):  
Monetary Policy ◽  
Exchange Rate ◽  
Nominal Exchange Rate ◽  
Production Costs ◽  
Policy Implications ◽  
Relative Price ◽  
The Exchange Rate ◽  
Pass Through ◽  
Exchange Rate Pass Through ◽  
Future Path

The exchange rate pass-through for Nigeria imports is estimated by applying an econometric procedure to sectoral data which avoids the pit-falls in previous studies. We use the mark-up approach, which implies setting export prices as a mark-up on production costs. So, the price facing importers is the exchange rate adjusted production costs where mark-up depends on the competitive pressures in the import's market and the nominal exchange rate. Our results indicate incomplete pass-through at varying degrees across sectors, which implies that the foreign exporters passed on only part of the increase in their costs of production to import prices. Also, it reveals that the effort of the Nigerian government in encouraging companies to use local inputs where possible instead of relying on imported intermediate inputs is gradually yielding positive results. Important policy implications that follow from our results of incomplete pass-through to domestic prices could influence CBN forecasts of future path of inflation, a key element in the conduct of monetary policy. Indeed, the successful implementation of monetary policy presupposes that CBN has not only a good understanding of inflation dynamics but is also relatively successful at predicting the future path of inflation. Also, our results imply that the exchange rate policy may be a blunt instrument when used to restore external balance since relative price adjustments will be limited. Furthermore, the incomplete pass-through suggests that exchange rate changes are likely to lead to smaller real effects on the economy through lower changes in both the terms of trade and import volumes and finally, the extent of inflation (deflation) effects of exchange rate depreciation (appreciation) operating through changes in the prices of imported goods will be moderated.

scholarly journals PERBANDINGAN EFEKTIVITAS MEKANISME TRANSMISI KEBIJAKAN MONETER ANTARA JALUR SUKU BUNGA DENGAN JALUR NILAI TUKAR TERHADAP SASARAN AKHIR INFLASI

Media Ekonomi ◽  
2019 ◽  
Vol 25 (1) ◽  
pp. 1
Author(s):  
Martin Simanjuntak ◽  
Budi Santosa
Keyword(s):  
Monetary Policy ◽  
Exchange Rate ◽  
Interest Rate ◽  
Time Lag ◽  
Transmission Mechanism ◽  
Monetary Policy Transmission ◽  
Policy Transmission ◽  
Monetary Policy Transmission Mechanism ◽  
The Interest Rate ◽  
Interest Rate Channel

<em>This result discusses the effectiveness of the transmission mechanism of monetary policy by comparing the interest rate channel with the exchange rate channel towards the final inflation taget. </em><em>This study using regression method Vector Error Correction Model (VECM). In the study of this monetary policy transmission mechanism using secondary data based on monthly time series, namely from January 2011 to December 2015. The data is obtained from Bank Indonesia Financial Economic Statistics (SEKI).</em> <em>From the results of this research, the transmission mechanism of monetary policy exchange rate channel is more effective than monetary policy transmission mechanism interest rate channel; it is proven through the test impulse responses and variance decomposition test. In the exchange rate channel time lag until reach the final target of monetary policy (inflation) is 4 months while for the interest rate channel time lag until reach the final target of monetary policy is 5 months. RPUAB very suitable for use as an operational target in the monetary policy transmission mechanism cause rapid and strong response from RPUAB in responding the shock of monetary policy. RPUAB is the biggest variable that dominates the formation of inflation.</em>

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