scholarly journals The Monetary Transmission Mechanism: An Empirical Framework

1995 ◽  
Vol 9 (4) ◽  
pp. 11-26 ◽  
Author(s):  
John B Taylor
Keyword(s):  
Interest Rates ◽  
Rational Expectations ◽  
Transmission Mechanism ◽  
Monetary Transmission ◽  
Market Prices ◽  
Policy Rules ◽  
Monetary Transmission Mechanism ◽  
Real Gdp ◽  
The Impact

This paper provides an overview of the monetary transmission mechanism describing the impact of changes in monetary policy on real GDP. Changes in financial market prices--including long-term interest rates and exchange rates--are the main vehicle for the transmission of policy. The framework incorporates rational expectations and policy rules. It is empirical and appears to fit the facts well.

scholarly journals Assessing the efficiency of the monetary transmission mechanism channels in Ukraine

2021 ◽  
Vol 16 (3) ◽  
pp. 48-62
Author(s):  
Volodymyr Mishchenko ◽  
Svitlana Naumenkova ◽  
Svitlana Mishchenko
Keyword(s):  
Interest Rate ◽  
Open Economy ◽  
Small Open Economy ◽  
Transmission Mechanism ◽  
Monetary Transmission ◽  
Monetary Transmission Mechanism ◽  
Market Participants ◽  
Real Gdp ◽  
Gdp Growth Rate

The paper is focused on the performance features of the monetary transmission mechanism (MTM) in Ukraine as a small open economy. To assess the efficiency of monetary transmission channels, it is important to disclose their interaction, define criteria and tools for analyzing their impact on key macroeconomic parameters. The study deepens approaches to the analysis of the intensity of using monetary, credit, interest rate and exchange rate channels in Ukraine in 2005–2020 and detects violations in the functioning of the MTM. Using economic and statistical methods and regression models, the influence of the main channels of monetary transmission on real GDP growth rate and inflation in Ukraine was assessed. It was concluded that it is advisable to clarify the conditions for increasing the efficiency of MTM in Ukraine; also, the parameters of forecasting the intensification of its channels in the medium and long term are determined. The paper highlights measures to improve the formation of volume and structure of the monetary base and monetary aggregates, improve credit and investment climate, and increase the efficiency of monetary regulation. Moreover, interest rate and foreign exchange policies of the central bank to transmit impulses from the decisions of monetary authorities to market participants were substantiated.

scholarly journals THE INFLUENCE OF THE FOREIGN EXCHANGE CHANNEL OF THE TRANSMISSION MECHANISM AND FOREIGN EXCHANGE POLICY ON ECONOMIC DEVELOPMENT

2021 ◽  
Vol 26 (3(88)) ◽  
Author(s):  
Svitlana Mishchenko ◽  
Volodymyr Mishchenko ◽  
Svitlana Naumenkova
Keyword(s):  
Growth Rate ◽  
Economic Development ◽  
Exchange Rate ◽  
Central Bank ◽  
Foreign Exchange ◽  
Transmission Mechanism ◽  
Monetary Transmission ◽  
Monetary Transmission Mechanism ◽  
Real Gdp ◽  
The Impact

The article examines the peculiarities of the functioning of the currency channel of the monetary transmission mechanism of the central bank and its impact on the economic development of Ukraine in 2005-2020. The study was conducted on the basis of the use of linear regression models and the calculation of relevant indicators that characterize the reliability of the proposed models. The main economic parameters on which the dynamics of the hryvnia exchange rate has the greatest influence are determined and the methods of assessing the efficiency of the monetary channel currency transmission channel are improved. Based on the analysis and quantitative assessment of the impact of the weighted average exchange rate of hryvnia to the US dollar on the dynamics of the monetary base, monetary aggregates, lending rates, the base interest rate of the National Bank of Ukraine and the yield on short-term domestic government bonds, the main economic tendencies and links in the mechanism of functioning of the currency channel of monetary transmission were defined. In order to assess the impact of the currency channel on the main macroeconomic indicators, the impact of the dynamics of the hryvnia exchange rate on the growth rate of real GDP, inflation, the level of monetization of the economy and financial dollarization was determined. It is substantiated that the appreciation of the hryvnia exchange rate against leading currencies significantly restrains the growth rate of real GDP and contributes to rising inflation, which requires additional measures by the NBU to improve currency regulation and control. Based on the generalization of the NBU practice, the main directions are identified and a it was developed the system of measures to improve the efficiency of the monetary channel of the monetary transmission mechanism based on increasing the banking system's resilience to internal and external shocks, maintaining relative exchange rate stability and low volatility, ensuring effective foreign exchange market management, maintaining the balance of payments, as well as improving the efficiency of currency regulation and the implementation by the central bank of a prudent monetary policy that ensures the effective transmission of monetary impulses from the central bank to the real sector of the economy.

scholarly journals Panel Data Analysis of Monetary Transmission Mechanism for European Union Countries

2017 ◽  
Vol 4 (2) ◽  
pp. 42
Author(s):  
Dina Cakmur Yildirtan ◽  
Selin Sarili
Keyword(s):  
European Union ◽  
Interest Rates ◽  
Debt Crisis ◽  
Panel Data Analysis ◽  
Aggregate Demand ◽  
Transmission Mechanism ◽  
Monetary Transmission ◽  
Response Analysis ◽  
Data Set ◽  
Monetary Transmission Mechanism

Monetary transmission mechanism is the mechanism which shows  in what ways and what extent interaction between the real economy-monetary policy, impacts aggregate demand and production. While transmission channels or mechanisms traditionally classified they divided into three categories; interest rates, Exchange rates and other asset prices.In this study to test the existence of the European debt crisis by the monetary transmission mechanism, 15 members of European Union country by using annual (2002-2014) data set were included into study. We use panel unit root tests to analyze whether the variables in the model are stationary or not. For the countries included in the study, panel causality tests developed by Granger is applied. Panel Vector Autoregressive Model has been estimated and results of Impulse-Response Analysis and Variance Decomposition have been interpreted.

Monetary Transmission in the Term Structure of Interest Rates in Spain (1995-2003)

2021 ◽  
Vol 26 (1) ◽  
pp. 279-292
Author(s):  
María A. Prats ◽  
Gloria M. Soto
Keyword(s):  
Interest Rates ◽  
Term Structure ◽  
Rational Expectations ◽  
Transmission Mechanism ◽  
Monetary Transmission ◽  
Var Model ◽  
Expectations Hypothesis ◽  
Weak Evidence ◽  
One Year ◽  
The One

The aim of this paper is to investigate whether the effectiveness of the transmission mechanism of monetary  policy in Spain has changed since EMU establishment. The analysis is based on the fulfillment of the Expectations Hypothesis under rational expectations and the methodology is implemented through a  cointegrated  bivariate VAR model. The results reveal the existence of  monetary transmission in the term structure in the  period prior to EMU, even though the evidence is stronger up to the one-year rate. From 1999, the results are   only consistent with a weak evidence of monetary transmission.

The Channels of Transmission of Monetary Policy

2021 ◽  
pp. 45-88
Author(s):  
Juan Antonio Morales ◽  
Paul Reding
Keyword(s):  
Monetary Policy ◽  
Emerging Market ◽  
Asset Price ◽  
Balance Sheet ◽  
Transmission Mechanism ◽  
Monetary Transmission ◽  
Monetary Transmission Mechanism ◽  
The Interest Rate ◽  
The Impact ◽  
Transmission Of Monetary Policy

This chapter explores the monetary transmission mechanism (MTM) in low financial development countries (LFDCs). It successively discusses the interest rate, asset price, bank credit, balance sheet, expectations, and real balance channels. For each channel, conceptual aspects about how it operates, how it transmits monetary policy impulses to the economy’s financial and real spheres, are first presented. Next, the impact of the specificities of LFDCs on the channel’s strength and reliability are examined and the available empirical evidence is surveyed. The chapter concludes with a global assessment of the effectiveness of the monetary transmission mechanism in LFDCs. Evidence points to a transmission mechanism that is effective although not very strong, and possibly also more uncertain than in advanced and emerging market countries.

Open Market Operations

2019 ◽  
pp. 435-454
Author(s):  
Jan Toporowski
Keyword(s):  
Central Bank ◽  
Interest Rates ◽  
Central Banks ◽  
Transmission Mechanism ◽  
Policy Framework ◽  
Monetary Transmission ◽  
Quantitative Easing ◽  
Open Market ◽  
Financial Systems

Open market operations are the buying and selling of securities by the central bank. Such operations differ from discount operations in that open market operations are undertaken at the initiative of the central bank rather than a commercial bank. Historically, such trading of securities has predated the setting of interest rates. The emergence of long-term finance and complex financial systems has extended the range of securities in which central banks may deal. Open market operations depend on the policy framework set by the central bank. But such operations are not necessary for the setting of interest rates. Such operations are often undertaken when the monetary transmission mechanism from interest rates appears to have failed, as in the case of recent quantitative easing operations. In general, open market operations have proved effective in times of banking or financial crisis.

CHARACTERIZING THE MONETARY TRANSMISSION MECHANISM IN A SMALL OPEN ECONOMY: THE CASE OF MALAYSIA

2003 ◽  
Vol 48 (02) ◽  
pp. 113-134 ◽  
Author(s):  
WEE BENG GAN ◽  
LEE YING SOON
Keyword(s):  
Exchange Rate ◽  
Central Bank ◽  
Interest Rates ◽  
Open Economy ◽  
Small Open Economy ◽  
Policy Instrument ◽  
Transmission Mechanism ◽  
Monetary Transmission ◽  
Impulse Response Functions ◽  
Monetary Transmission Mechanism

This paper evaluates the monetary policy response of Malaysia's central bank and the nature of monetary transmission mechanism in the 1990s when the exchange rate was on a managed float and the capital account was open. Structural vector autogression analysis is employed to evaluate how the central bank sets short term interest rates taking into consideration the constraints faced in adjusting the policy instrument to shocks to the economy. The impulse response functions and the variance decomposition indicate that the central bank preferred to use foreign exchange intervention rather than interest rate to stabilize the ringgit exchange rate. The results suggest that a sustained high level of interest rates would have caused a prolonged and deep contraction in output during the East Asian financial crisis.

scholarly journals Structural VARs and the Monetary Transmission Mechanism in Low-Income African Countries†

2019 ◽  
Vol 28 (4) ◽  
pp. 455-478
Author(s):  
Bin Grace Li ◽  
Christopher Adam ◽  
Andrew Berg ◽  
Peter Montiel ◽  
Stephen O’Connell
Keyword(s):  
Monetary Policy ◽  
Low Income ◽  
Transmission Mechanism ◽  
Low Income Countries ◽  
Monetary Transmission ◽  
Finite Sample ◽  
African Countries ◽  
Monetary Transmission Mechanism ◽  
Structural Vars ◽  
The Impact

AbstractStructural Vector Autoregression (SVAR) methods suggest the monetary transmission mechanism may be weak and unreliable in many low-income African countries. But are structural VARs identified via short-run restrictions capable of detecting a transmission mechanism when one exists, under research conditions typical of low-income countries (LICs)? Using a small DSGE as our data-generating process, we assess the impact on VAR-based inference of short data samples, measurement error, high-frequency supply shocks, and other features of the LIC environment. The impact of these features on finite-sample bias appears to be relatively modest when identification is valid—a strong caveat, especially in LICs. Nonetheless many of these features undermine the precision of estimated impulse responses to monetary policy shocks, and cumulatively they suggest that statistically and economically insignificant results can be expected even when the underlying transmission mechanism is strong. These data features not only undermine the efficacy of the SVAR methodology for research and policy-making, but are also severe enough to motivate a continued search for monetary policy rules that are robust to these limitations.

scholarly journals The Monetary Transmission Mechanism in the New Economy: Evidence from Turkey (1997-2006)

2007 ◽  
Vol 2 (1) ◽  
pp. 15-24 ◽  
Author(s):  
Atilla Cifter ◽  
Alper Ozun
Keyword(s):  
Interest Rates ◽  
Money Supply ◽  
New Economy ◽  
Transmission Mechanism ◽  
New Keynesian ◽  
Monetary Transmission ◽  
Causality Test ◽  
Monetary Transmission Mechanism ◽  
New Period ◽  
The New Period

The Monetary Transmission Mechanism in the New Economy: Evidence from Turkey (1997-2006)This study aimed to test the money base, money supply, credit capacity, industrial production index, interest rates, inflation and real exchange rate data of Turkey during the years 1997 - 2006. These were tested through the monetary transmission mechanism and passive money hypothesis, using the vector error correction model-based causality test. Empirical findings showed that the passive money supply hypothesis of the new Keynesian economy is supported in part by accommodationalist views and differs from those of structuralist and liquidity preference theories. However, the monetary transmission mechanism has established that long-term money supply only affects general price levels, while production is influenced by interest rates in the new period of the Turkish economy. Empirical findings show that in this new period, interest transmission mechanisms are at the forefront.

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