The response of macroeconomic aggregates to monetary policy shocks in Pakistan

2014 ◽  
Vol 6 (4) ◽  
pp. 314-330 ◽  
Author(s):  
Abdul Rashid ◽  
Zainab Jehan
Keyword(s):  
Monetary Policy ◽  
Exchange Rate ◽  
Interest Rate ◽  
Error Correction ◽  
Money Supply ◽  
Open Economy ◽  
Output Growth ◽  
Content Type ◽  
Long Run ◽  
Macroeconomic Aggregates

Purpose – This paper aims to empirically examine how shocks to monetary policy measures (the short-term nominal interest rate and broad money supply) affect macroeconomic aggregates, namely, output growth of the economy, national price levels and the nominal exchange rate. Design/methodology/approach – Johansen’s (1995) cointegration technique and error correction models are used to explore the long-run relationship among variables. To investigate how macroeconomic aggregates respond to a one-standard deviation shock to the underlying monetary measures, the authors estimate impulse response functions based on error correction models. The study uses quarterly data covering the period 1980-2009. Findings – The results provide evidence that there is a long-run stable relationship between the authors' monetary measures and the underlying macroeconomic aggregates. They also find that the industrial production adjusts at a faster speed relative to commodity prices and the exchange rate over the examined period. Further, they show that the short-term interest rate has relatively stronger effects on output as compared to broad money supply, whereas prices and exchange rates adjust more quickly to their long-run equilibrium when money supply is used as a measure of monetary policy. Finally, the authors find significant evidence of a price puzzle regardless of whether they consider a closed or an open economy case. However, an initial appreciation of exchange rate is observed in response to a one-standard deviation shock to money supply, indicating the overshooting hypothesis phenomenon. Practical implications – The findings of the analysis suggest that the interest rate-oriented monetary policy is more effective when the monetary authorities’ objective is to enhance the output growth of the economy. However, in case of inflation targeting, the broad money supply seems a more appropriate instrument. Our findings also suggest that the monetary policy has a significant role in stabilizing both real and nominal sectors of the economy. Originality/value – The main value of this paper is to examine the significance of monetary policy for a developing and relatively small open economy, namely, Pakistan. The authors use the error correction model, which improves the estimation by accounting for the long-run association. They also take into account the world oil prices by including the world commodity price index as a control variable in their empirical investigation. Finally, they utilize quarterly data rather than annual, and they cover a relatively recent sample period.

The relationship between financial development and effectiveness of monetary policy: new evidence from ASEAN-3 countries

2021 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Zulkefly Abdul Karim ◽  
Danie Eirieswanty Kamal Basa ◽  
Bakri Abdul Karim
Keyword(s):  
Monetary Policy ◽  
Money Supply ◽  
Financial Development ◽  
Open Economy ◽  
Banking Sector ◽  
Financial System ◽  
The Philippines ◽  
Output Growth ◽  
Content Type ◽  
The Relationship

Purpose This paper aims to investigate the relationship between financial development (FD) and monetary policy effectiveness (MPE) on output and inflation in ASEAN-3 countries (Singapore, Malaysia and the Philippines). Design/methodology/approach This study uses an open economy structural vector autoregressive model to generate MPE. Then, an autoregressive distributed lagged (ARDL) model is used to analyze the effect of FD on MPE across countries. Findings The findings revealed that FD plays a different role in MPE across countries. In Malaysia, a more developed financial system tends to reduce the MPE on output, whereas in Singapore, results show that the more developed financial system (stock market capitalization) tends to increase MPE on output. However, in the Philippines, the main results show that the effect of FD (liquid liabilities) upon MPE on output is depending on the policy variable (interest rates or money supply). Originality/value This paper fills this gap by providing the first study of ASEAN-3 countries in examining how effective is a monetary policy in response to the development of the financial market across the country. Second, this paper considers two FD indicators, namely, the banking sector and capital market development in investigating its effect on MPE on output and inflation. Third, the authors construct the MPE in each country using a structural (identified) VAR model by aggregating the response of output growth and inflation rate on monetary policy changes (interest rate and money supply) using impulse–response function. Regarding this, the results of this study provide new empirical evidence and insight into the long debate on the relationship between FD and the MPE.

scholarly journals EFFECT OF MONETARY POLICY ON ECONOMIC GROWTH IN NIGERIA: AN EMPIRICAL INVESTIGATION

10.26458/1815 ◽  
2018 ◽  
Vol 18 (1) ◽  
pp. 123-140 ◽  
Author(s):  
Lawrence Olisaemeka UFOEZE ◽  
J. C ODIMGBE ◽  
V. N. EZEABALISI ◽  
Udoka Bernard ALAJEKWU
Keyword(s):  
Economic Growth ◽  
Monetary Policy ◽  
Exchange Rate ◽  
Interest Rate ◽  
Money Supply ◽  
Time Series Data ◽  
Series Data ◽  
Long Run ◽  
Effect Of Monetary Policy ◽  
Positive Effect

The study investigated effect of monetary policy on economic growth in Nigeria. The natural log of the GDP was used as the dependent variables against the explanatory monetary policy variables: monetary policy rate, money supply, exchange rate, lending rate and investment. The time series data is the market controlled period covering 1986 to 2016. The study adopted an Ordinary Least Squared technique and also conducted the unit root and co-integration tests. The study showed that long run relationship exists among the variables. Also, the core finding of this study showed that monetary policy rate, interest rate, and investment have insignificant positive effect on economic growth in Nigeria. Money supply however has significant positive effect on growth in Nigeria. Exchange rate has significant negative effect on GDP in Nigeria. Money supply and investment granger cause economic growth, while economic growth causes interest rate in Nigeria. On the overall, monetary policy explain 98% of the changes in economic growth in Nigeria. Thus, the study concluded that monetary policy can be effectively used to control Nigerian economy and thus a veritable tool for price stability and improve output.

scholarly journals Assessing Volatilities of Monetary Policy and their Effects on the Islamic and Conventional Stock Markets in Indonesia

2018 ◽  
Vol 7 (2) ◽  
pp. 161-172
Author(s):  
M Shabri Abd Majid
Keyword(s):  
Monetary Policy ◽  
Exchange Rate ◽  
Interest Rate ◽  
Interest Rates ◽  
Money Supply ◽  
Open Economy ◽  
Stock Markets ◽  
Monetary Shocks ◽  
Policy Makers ◽  
The Us

The main objective of this study is to empirically assess the volatilities of the monetary policy instruments and their effects on the Indonesian Islamic and conventional stock market. The changes in exchange rate, interest rates, and money supply and their effects on the stock markets are investigated using the using the Generalized Autoregressive Conditional Heteroskedasticity frameworks. As a big-open economy, the capital market of Indonesia is vulnerable to the global monetary shocks changes, thus the US federal funds rate is also incorporated into the GARCH model. The study documented that, with the exception of the US interest rate, the volatilities of all monetary policy variables of interest rate, exchange rate, and money supply were documented affecting the volatilities of both Islamic and conventional stock markets. These findings imply that the volatilities of Islamic and conventional stock markets have similar determinants, thus to stabilize the markets, the investigated monetary policy variables should be controlled for by the policy-makers. Any monetary policy design imposed by the policy-makers would have a similar effect on both conventional and Islamic stocks in Indonesia.DOI: 10.15408/sjie.v7i2.7352

scholarly journals Monetary Policy Spillovers Through Industrial Growth in Nigeria: A Time Series Analysis

2019 ◽  
Vol 33 (1) ◽  
pp. 94-110 ◽  
Author(s):  
Olatunji A. Shobande
Keyword(s):  
Time Series ◽  
Monetary Policy ◽  
Exchange Rate ◽  
Interest Rate ◽  
Money Supply ◽  
Series Data ◽  
Industrial Output ◽  
Industrial Growth ◽  
Long Run ◽  
Domestic Credit

Abstract The study examines the impact of switching from direct to indirect monetary policy on industrial growth in Nigeria, using the annual time series data sourced from the Central Bank of Nigeria’s (CBN) statistical bulletin between 1960 and 2015. The study adopts the Autoregressive Distributed Lag (ARDL) bound testing approach developed by Pesaran, Shin and Smith (2001) for estimating the relevant relationships. The result of the long-run estimates shows that domestic credit, interest rate and trade balance have positive impact on industrial output while money supply, inflation and exchange rate have negative impact on industrial growth. The result of the short-run dynamics shows that change in the previous (one and second lagged) periods of indirect monetary policy (interest rate, money supply, domestic credit and exchange rate) and industrial output were negatively related to change in industrial output. The error correction term indicates the speed of adjustment of equilibrium to their long-run position, which was found to be negative and significant. The study recommends that policy makers use both conventional and non-conventional monetary policies to speed up industrial output growth and enhance economic recovery by manipulating the macro-economic fundamentals.

scholarly journals The Effects of Monetary Policy on Agricultural Output in Eswatini

2019 ◽  
pp. 94-99
Author(s):  
Mary S. Mashinini ◽  
Sotja G. Dlamini ◽  
Daniel V. Dlamini
Keyword(s):  
Monetary Policy ◽  
Exchange Rate ◽  
Interest Rate ◽  
Interest Rates ◽  
Money Supply ◽  
Agricultural Sector ◽  
Continuous Production ◽  
Annual Data ◽  
Agriculture Sector ◽  
Long Run

The agricultural sector in Eswatini is viewed as an engine to foster economic growth, reduce poverty and eradicate inequality. The purpose of the study was to investigate the effects of monetary policy on the agriculture Gross Domestic Product (GDP) in Eswatini using annual data for the period starting from 1980 to 2016. Using the Vector Error Correction model (VEC), the empirical results indicated that in the long run, agriculture GDP, exchange rate, interest rate, inflation, broad money supply, and agriculture credit have a negative effect on agriculture GDP in Eswatini. In the short run the study indicated that the variation in agriculture GDP is largely significant caused by the lagged agricultural GDP, interest rate, exchange rate as well as inflation. Money supply and agriculture credit contribute 0.46% and 0.55%, respectively to the variation in agricultural GDP. The study recommends that programs aimed at availing affordable credit to farmers should be prioritized to cushion the agriculture sector against adverse monetary policy shocks in the short to medium term, specifically interest rates, to ensure continuous production.

scholarly journals The Effect of Monetary Policy on Foreign Trade in Nigeria

2020 ◽  
Vol 4 (1) ◽  
pp. 1-8
Author(s):  
Ashamu Sikiru O.
Keyword(s):  
Monetary Policy ◽  
Foreign Direct Investment ◽  
Exchange Rate ◽  
Interest Rate ◽  
Foreign Trade ◽  
Error Correction ◽  
Money Supply ◽  
Direct Investment ◽  
Trade Openness ◽  
The Impact

This research work investigated the impact of monetary policy on foreign trade in Nigeria during the period 1981 to 2017. The research made use of secondary data which are collected from the Central Bank of Nigeria, Statistical Bulletin (2017). The model obtained from the result represents a Error Correction Model (ECM) which relates the dependent variable (Net Import) to several predictor variables Money Supply, Interest Rate, Exchange Rate, Foreign Direct Investment and Trade Openness. From the findings of the study, the error correction term (speed of adjustment towards equilibrium) value of -0.53581 is significant at 5% and implies that there is a long run causality running from monetary policy   activities measures of foreign trade. However, only all the variable was used in the study was significant at 5% level of significance. This implies that monetary policy in Nigeria has a positive influence on foreign trade within the period, except for interest rate that has a negative coefficient and not significant. In conclusion, these intermediate variables of monetary, the exchange rate arguably have a huge impact on the economy because of its effect on the value of local currency, domestic inflation, macroeconomic credibility, capital flows and financial stability. Increased exchange rate directly affects the prices of imported commodities and an increase in the price of imported goods and services contributes directly to increase in inflation. Based on the analysis, the study concluded that there is significance relationship between money supply and net import in Nigeria and also that there is relationship between foreign direct investment and net import in Nigeria. The study also shows that there is relationship between trade openness and net import in Nigeria.

The determinants of ASEAN-5 real effective exchange rate vis-á-vis the UK pound

2014 ◽  
Vol 10 (2) ◽  
pp. 98-118 ◽  
Author(s):  
Abdalrahman AbuDalu ◽  
Elsadig Musa Ahmed
Keyword(s):  
Exchange Rate ◽  
Interest Rate ◽  
Money Supply ◽  
Real Effective Exchange Rate ◽  
Content Type ◽  
Long Run ◽  
Effective Exchange ◽  
Short Run ◽  
The Uk ◽  
Effective Exchange Rate

Purpose – The purpose of this paper is to present an empirical analysis of long-run and short-run forcing variables of purchasing power parity (PPP) for ASEAN-5 currencies vis-à-vis the UK pound, i.e. their real effective exchange rate (REER). Design/methodology/approach – This study uses a recently developed autoregressive distributed lag (ARDL) approach to co-integration (Pesaran et al., 2001) over the period 1991:Q1-2006:Q2. Our empirical results suggest that the foreign interest rate (R*) and domestic money supply (M1) are the significant long-run forcing variables of PPP for ASEAN-5 REERs for the three periods. Findings – In the short-run, the variables have different impacts during the sub-periods and full period for ASEAN-5 countries. The results suggest that the domestic money supply (M1) for Malaysia, domestic interest rate and foreign interest rate (R*) for Indonesia, domestic money supply (M1) and term of trades (TOT) for Philippines, foreign interest rate (R*) for Thailand, and foreign interest rate (R*) and net foreign assets (NFA) for Singapore, respectively, have the highest significant short-run forcing variable of PPP for countries REERs. Originality/value – In this respect, the outcomes can derive policy implication for the monetary authorities in these ASEAN-5 countries.

The Role of Different Channels in Transmitting Monetary Policy into Output and Price in Vietnam

2015 ◽  
pp. 20-40
Author(s):  
Vinh Nguyen Thi Thuy
Keyword(s):  
Monetary Policy ◽  
Exchange Rate ◽  
Interest Rate ◽  
Money Supply ◽  
Monetary Transmission ◽  
Impulse Response Functions ◽  
Short Run ◽  
The Exchange Rate ◽  
The Interest Rate ◽  
Interest Rate Channel

The paper investigates the mechanism of monetary transmission in Vietnam through different channels - namely the interest rate channel, the exchange rate channel, the asset channel and the credit channel for the period January 1995 - October 2009. This study applies VAR analysis to evaluate the monetary transmission mechanisms to output and price level. To compare the relative importance of different channels for transmitting monetary policy, the paper estimates the impulse response functions and variance decompositions of variables. The empirical results show that the changes in money supply have a significant impact on output rather than price in the short run. The impacts of money supply on price and output are stronger through the exchange rate and credit channels, but however, are weaker through the interest rate channel. The impacts of monetary policy on output and inflation may be erroneous through the equity price channel because of the lack of an established and well-functioning stock market.

Macroeconomic Determinants of Stock Market Prices in Nepal

2020 ◽  
Vol 2 (1) ◽  
pp. 56-65
Author(s):  
Bhim Prasad Panta
Keyword(s):  
Exchange Rate ◽  
Interest Rate ◽  
Stock Market ◽  
Money Supply ◽  
Developing Economies ◽  
Annual Data ◽  
Economic Variables ◽  
Market Prices ◽  
Ardl Model ◽  
Long Run

Background: Stock market plays a crucial role in the financial system of a country. It can be viewed as a channel through which resources are properly channelized. It enables the governments and industry to raise long-term capital for financing new projects. The stock markets of developing economies are likely to be sensitive to various macro-economic factors such as GDP, imports, exports, exchange rates etc., when there is high demand on financial products, as a constituent of financial market, ultimately stock market needs to develop. Many factors can be a signal to stock market participants to expect a higher or lower return when investing in stock and one of these factors are macroeconomic variables and thus, macro-economic variables tend to effect on stock market development. Objective: This study examines the linkage between stock market prices (NEPSE index) and five macro-economic variables, namely; real GDP, broad money supply, interest rate, inflation, and exchange rate using ARDL model and to explain the behavior of the Nepal Stock Exchange Index. Methods: The ECM which is delivered from ARDL model through simple linear transformation to integrate short run adjustments with long run equilibrium without losing long run information. The analysis has been done by using 25 years' annual data from 1994 to 2019. Findings: The result suggests that the fluctuation of Nepse Index in long run is strongly associated with broad money supply, interest rate, inflation, and exchange rate. Conclusion: Though Nepalese stock market is in primitive stage, broad money supply, interest rate, inflation and exchange rate are major factors affecting stock market price of Nepal. So, policies and strategies should be made and directed taking these in to consideration. Implication: The findings of research can be helpful to understand the behavior of Nepalese stock market and develop policies for market stabilization.

scholarly journals Analisis Inflasi di Indonesia (Suatu Pendekatan Model Dinamik)

2018 ◽  
Vol 7 (2) ◽  
pp. 85
Author(s):  
Afrizal Afrizal
Keyword(s):  
Exchange Rate ◽  
Interest Rate ◽  
Error Correction ◽  
Money Supply ◽  
Correction Term ◽  
Research Data ◽  
Cointegration Test ◽  
The Exchange Rate ◽  
The Interest Rate

This study aims to determine the magnitude of the effect of the money supply, the exchange rate of rupiah (exchange rate) and the interest rate on inflation in Indonesia during the period 2000.12016.4. The analysis tools used for this research data are: unit root test, integration degree test, cointegration test, error correction model / ECM. The results showed that all staioner research data at level 1 (first difference) based on cointegration test showed that the variables observed in this study co-integration or have long-term relationship. The ECM model used is valid, as indicated by the error correction term (ECT) coefficient is significant. In the short run the money supply, the exchange rate of rupiah (exchange rate) and the interest rate is not significant to the inflation rate, but in the long term is significant.

Sign in / Sign up

Export Citation Format

Share Document