THE IMPACT OF THE MONETARY TRANSMISSION MECHANISM ON MACROECONOMIC STABILITY IN UKRAINE

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.

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

Journal of African Economies ◽

10.1093/jae/ejz005 ◽

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.

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Identifying the Monetary Transmission Mechanism in Sub-Saharan Africa

10.1093/oso/9780198785811.003.0006 ◽

2018 ◽

Author(s):

Bin Grace Li ◽

Christopher Adam ◽

Andrew Berg ◽

Peter Montiel ◽

Stephen O’Connell

Keyword(s):

Low Income ◽

Transmission Mechanism ◽

Sub Saharan Africa ◽

Low Income Countries ◽

Monetary Transmission ◽

Finite Sample ◽

Monetary Transmission Mechanism ◽

Short Run ◽

Structural Vars ◽

The Impact

VAR methods suggest that the monetary transmission mechanism may be weak and unreliable in low-income countries. But are structural VARs identified via short-run restrictions capable of detecting a transmission mechanism where one exists, under research conditions typical of these countries? Using small DSGEs as data-generating processes, the chapter assesses 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 low-income countries. However, many of these features undermine the precision of estimated impulse responses to monetary policy shocks, and cumulatively they suggest that ‘insignificant’ results can be expected even when the underlying transmission mechanism is strong.

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Financial fragmentation and the monetary transmission mechanism in the euro area: a smooth transition VAR approach

Studies in Nonlinear Dynamics & Econometrics ◽

10.1515/snde-2017-0097 ◽

2018 ◽

Vol 22 (5) ◽

Author(s):

Hans-Helmut Kotz ◽

Willi Semmler ◽

Ibrahim Tahri

Keyword(s):

Euro Area ◽

Multivariate Time Series ◽

Transmission Mechanism ◽

Smooth Transition ◽

Monetary Transmission ◽

Monetary Transmission Mechanism ◽

Time Series Approach ◽

Lending Rates ◽

Pass Through ◽

The Impact

Abstract This paper investigates the effect of financial fragmentation on the monetary transmission mechanism in different Euro area economies, categorized into two groups: countries considered as “core” economies and countries characterized as “peripheral” economies. We analyze the effects of financial fragmentation on the monetary transmission mechanism through the traditional interest rate channel. To gauge the impact of changes in policy rates on the behavior of real variables such as aggregate output and employment we use a Smooth Transition VAR (VSTAR) model. Employing a nonlinear multivariate time series approach helps us capture the regime-dependent dynamics of the variables under study. The results obtained show that money market rates targeted by the central bank do not completely pass through to banks’ lending rates to firms, particularly in a financially fragmented environment. This finding supports the hypothesis of an impairment of the monetary transmission mechanism as a result of financial fragmentation. Given this impairment in some sectors and regions an accompanying credit volume policy might have been appropriate.

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The Monetary Transmission Mechanism: An Empirical Framework

The Journal of Economic Perspectives ◽

10.1257/jep.9.4.11 ◽

1995 ◽

Vol 9 (4) ◽

pp. 11-26 ◽

Cited By ~ 176

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.

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Loan to Value Ratio and Monetary Transmission Mechanism

DANUBE Law and Economics Review ◽

10.2478/danb-2019-0020 ◽

2019 ◽

Vol 10 (4) ◽

pp. 383-399

Author(s):

Vlastimil Reichel ◽

Daniel Němec ◽

Jakub Chalmovianský

Keyword(s):

Dynamic Stochastic General Equilibrium ◽

Transmission Mechanism ◽

Monetary Transmission ◽

Housing Sector ◽

Real Economy ◽

Macroeconomic Variables ◽

Monetary Transmission Mechanism ◽

Dynamic Stochastic ◽

The Business Cycle ◽

The Impact

Abstract Using a dynamic stochastic general equilibrium model (DSGE) with the housing sector, this paper evaluates the impact of housing collateral on the business cycle in the Czech economy. We devote special attention to the setting of the loan to value (LTV) ratio, which we believe plays an important role as a regulator of the monetary transmission mechanism. The impacts of LTV ratio are quantified by simulating the responses of alternative LTV level setting on key macroeconomic variables. Our simulations are based on an estimated DSGE model. Our approach allows us to understand better the responses of the real economy to the tightening of monetary policy moderated by different LTV levels. Our results show that higher loan to value ratios strengthen the effect of the monetary transmission mechanism to consumption and output.

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The monetary transmission mechanism in Polish economy

Oeconomia Copernicana ◽

10.12775/oec.2012.013 ◽

2012 ◽

Vol 3 (3) ◽

pp. 21-35

Author(s):

Adam Waszkowski

Keyword(s):

Exchange Rate ◽

Output Growth ◽

Transmission Mechanism ◽

Monetary Transmission ◽

Recursive Structure ◽

Monetary Transmission Mechanism ◽

Price Puzzle ◽

Macroeconomic Indicators ◽

Polish Economy ◽

The Impact

The aim of this article is to define the monetary transmission mechanism of the Polish economy and to identify the impact of shocks from the monetary policy on macroeconomic indicators such as price levels or GDP. In this regard there were used a theoretical vector autoregression model and conducted its recursive structure proposed by Sims (1980) using Cholesky decomposition. This allowed to isolate the impact of shocks: a supply, a demand, monetary and exchange rate on the value and output growth, inflation and exchange rate. Thanks to this it was visualized in the Polish economy a phenomenon of output and price puzzle.

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The impact of interest rate channel on the monetary transmission mechanism in Vietnam

Accounting ◽

10.5267/j.ac.2020.4.003 ◽

2020 ◽

pp. 569-580

Author(s):

Thanh Tung Hoang ◽

Van Anh Nguyen Thi ◽

Bich Vuong Nguyen Thi ◽

Van Thoi Tran

Keyword(s):

Interest Rate ◽

Transmission Mechanism ◽

Monetary Transmission ◽

Monetary Transmission Mechanism ◽

The Impact ◽

Interest Rate Channel

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Innovation Mechanism in Monetary Policy Forecasting: Unification of all Macroeconomic Puzzles in SVAR Model

Marketing and Management of Innovations ◽

10.21272/mmi.2020.4-17 ◽

2020 ◽

pp. 219-230

Author(s):

Angela Kuznyetsova ◽

Olha Klishchuk ◽

Andrew Lisnyak ◽

Atik Kerimov ◽

Azer Babayev

Keyword(s):

Monetary Policy ◽

Exchange Rate ◽

Real Exchange Rate ◽

Foreign Exchange ◽

Half Life ◽

Transmission Mechanism ◽

Monetary Transmission ◽

The Real ◽

Monetary Transmission Mechanism ◽

The Impact

The article is devoted to developing a forecasting mechanism unifying all macroeconomic puzzles, which violate fundamental macroeconomic relationships among variables of the monetary transmission mechanism in Ukraine. The violations mentioned above caused by breaking one-law price (PPP puzzle), uncovered interest rates rule (UIP puzzle), plausible emergence of new sophisticated financial instruments, and causality of international risk-sharing conditions under the financial capital spillover. The authors calculated the residuals in the VAR model of monetary transmission mechanism (MTM) to analyze the correlations between shocks and disturbances in these variables. Furtherly these correlations were put in constructing the restriction matrix for building a structural vector autoregressive model. The correlations between shocks and disturbances were employed for estimating the impulse response functions used for determining the duration of half-life shocks for the real exchange rate. The obtained results allowed noticing that relationships between macroeconomic variables in the monetary transmission mechanism were not similar if considering the established foreign exchange arrangement. In particular, during 2007-2020, relationships among MTM variables were violated. Besides, the half-life duration of the real exchange rate was far longer. While in cases for Ukraine before switching to floating exchange rate regime and after it became less explicit and half-lives were shorter. The findings allowed confirming the impact of the currency arrangement switching on violation of traditional linkages between the variables of foreign exchange rate channel of MTM. Thus, it showed that during the fixed arrangement, absolutely all reactions were violated. Although after the introduction of a flexible exchange rate, the sign of REER correlation with foreign trade terms has changed to positive and more strengthened. Therefore, it has demonstrated a positive impact on the dynamics of real GDP and lower inflation. The findings of the current study could be used to improve existed methodical approaches for establishing structural constraints on variables responses to the shock of the exchange rate. The algorithm for designing optimal monetary policy strategies could take place in empirical data and forecasting exchange rate volatility. Keywords: PPP puzzle, UIP puzzle, MTM, financial innovations, REER, SVAR.

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

Odessa National University Herald. Economy ◽

10.32782/2304-0920/3-88-11 ◽

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.

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