scholarly journals Monetary Policy Transmission in Emerging Markets and Developing Economies

2020 ◽  
Vol 20 (35) ◽  
Author(s):  
Luis Brandao-Marques ◽  
R. Gelos ◽  
Thomas Harjes ◽  
Ratna Sahay ◽  
Yi Xue
Keyword(s):  
Monetary Policy ◽  
Interest Rates ◽  
Inflation Targeting ◽  
Developing Economies ◽  
Central Banks ◽  
Output Growth ◽  
Policy Framework ◽  
Monetary Transmission ◽  
Monetary Policy Transmission ◽  
Policy Transmission

Central banks in emerging and developing economies (EMDEs) have been modernizing their monetary policy frameworks, often moving toward inflation targeting (IT). However, questions regarding the strength of monetary policy transmission from interest rates to inflation and output have often stalled progress. We conduct a novel empirical analysis using Jordà’s (2005) approach for 40 EMDEs to shed a light on monetary transmission in these countries. We find that interest rate hikes reduce output growth and inflation, once we explicitly account for the behavior of the exchange rate. Having a modern monetary policy framework—adopting IT and independent and transparent central banks—matters more for monetary transmission than financial development.

Interest Rates and Macroeconomic Investment under Uncertainty

2021 ◽  
Vol 54 (3) ◽  
pp. 319-345
Author(s):  
Ansgar Belke ◽  
Matthias Göcke
Keyword(s):  
Monetary Policy ◽  
Interest Rate ◽  
Interest Rates ◽  
Central Banks ◽  
Monetary Policy Transmission ◽  
Policy Transmission ◽  
Rate Effects ◽  
Exact Shape ◽  
Micro Level ◽  
The Interest Rate

The interest rate is generally considered as an important driver of macroeconomic investment characterised by a particular form of path dependency, “hysteresis”. At the same time, the interest rate channel is a central ingredient of monetary policy transmission. In this context, we shed light on the issue (which currently is a matter of concern for many central banks) whether uncertainty over future interest rates at the zero lower bound hampers monetary policy transmission. As an innovation we derive the exact shape of the “hysteretic” impact of rate changes on macroeconomic investment under different sorts of uncertainty. Starting with hysteresis effects on the micro level, we apply an adequate aggregation procedure to derive the interest rate effects on a macro level. Our results may serve as a guideline for future central banks’ policies on how to stimulate investment in times of low or even zero interest rates and uncertainty.

scholarly journals Monetary policy transmission and growth of the manufacturing sector in Algeria

2016 ◽  
Vol 13 (4) ◽  
pp. 212-224
Author(s):  
Adeleke Omolade ◽  
Harold Ngalawa
Keyword(s):  
Monetary Policy ◽  
Interest Rates ◽  
Money Supply ◽  
Manufacturing Sector ◽  
Output Growth ◽  
Gdp Growth ◽  
Monetary Policy Transmission ◽  
Vector Autoregressive ◽  
Policy Transmission ◽  
Monetary Policy Transmission Mechanism

The principal objective of this study is to investigate the relationship between monetary policy and growth of the manufacturing sector in Algeria. Using a structural vector autoregressive model and quarterly frequency data for the period 1980Q1 to 2010Q4, the study finds no evidence that money supply responds to fluctuations in manufacturing sector growth or Gross Domestic Product (GDP) growth. Interest rates, however, are seen to explain nearly a third of the variations in manufacturing output growth, suggesting that the manufacturing sector is sensitive to interest rates. The study also reveals that money supply variations are largely explained by changes in interest rates. A peek at the monetary transmission process reveals that Algeria employs monetary aggregates as the primary operating tool of monetary policy. The monetary authorities adjust total money supply in response to any movements in the rate of interest, probably to keep the rate of interest within a certain target given other developments in the fundamentals. The interest rates, in turn, play an important role in determining variations in manufacturing sector growth. In addition, the interest rates significantly affect exchange rates, which are observed to respond to changes in overall GDP growth. It is the overall GDP growth that has the largest influence on manufacturing sector growth, probably due to strong forward and backward linkages between the manufacturing sector and other sectors of the economy. Keywords: Monetary policy, transmission mechanism, manufacturing output, oil price shocks. JEL Classifications: E23, E31, E52

scholarly journals SAY NO TO INFLATION TARGETING: A CALL FOR THE ADAPTATION OF A ZERO-INTEREST REGIME

2021 ◽  
Vol 7 (3) ◽  
Author(s):  
Atiq Ur Rehman
Keyword(s):  
Monetary Policy ◽  
Interest Rates ◽  
Inflation Targeting ◽  
Full Employment ◽  
Central Banks ◽  
Policy Framework ◽  
Price Stability ◽  
Socioeconomic Indicators ◽  
Wide Range ◽  
The Impact

In its early history, monetary policy focused on numerous objectives, including stable growth, full employment, stable exchange rates and price stability. In the 1990s, many countries shifted their monetary policy framework from monetary aggregate/interest rate targeting to inflation targeting, in which inflation was regarded as the primary target of monetary policy, and interest rates the primary tool for achieving target inflation. Inflation targeting has diverted the focus of central banks from growth and employment to price stability. Unfortunately, there is considerable evidence which shows that inflation targeting frameworks are unable to control inflation in the way central banks want, and in fact lead to a greater departure from optimal growth and employment, the two key targets of sustainable development goals (SDGs). There is also evidence suggesting a strong association between inflation targeting and the move away from several other SDGs. Employing a systematic review of the related literature and Granger causality tests applied to data from various countries, this paper shows that inflation targeting fails to control inflation and has several undesirable impacts on a wide range of socioeconomic indicators. It is argued that the zero-interest regime is the optimal regime with respect to the impact on socioeconomic indicators, and also supports the interest free economy advocated by Islam.

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.

scholarly journals Regular Econometric Model of Taylor for Albania

2016 ◽  
Vol 5 (1) ◽  
pp. 123
Author(s):  
Ergys Misha
Keyword(s):  
Economic Growth ◽  
Monetary Policy ◽  
Interest Rates ◽  
Financial Stability ◽  
Inflation Targeting ◽  
Inflation Rate ◽  
Stock Exchange ◽  
Central Banks ◽  
Financial Assets

The Taylor’s Rule Central Banks is applying widely today from Central Banks for design the monetary policy and for determination of interest rates. The purpose of this paper is to assess monetary policy rule in Albania, in view of an inflation targeting regime. In the first version of the Model, the Taylor’s Rule assumes that base interest rate of the monetary policy varies depending on the change of (1) the inflation rate and (2) economic growth (Output Gap).Through this paper it is proposed changing the objective of the Bank of Albania by adding a new objective, that of "financial stability", along with the “price stability”. This means that it is necessary to reassess the Taylor’s Rule by modifying it with incorporation of indicators of financial stability. In the case of Albania, we consider that there is no regular market of financial assets in the absence of the Stock Exchange. For this reason, we will rely on the credit developmet - as a way to measure the financial cycle in the economy. In this case, the base rate of monetary policy will be changed throught: (1) Targeting Inflation Rate, (2) Nominal Targeting of Economic Growth, and (3) Targeting the Gap of the Ratio Credit/GDP (mitigating the boom cycle, if the gap is positive, and the contractiocycle if the gap is negative).The research data show that, it is necessary that the Bank of Albania should also include in its objective maintaining the financial stability. In this way, the contribution expected from the inclusion of credit gap indicators in Taylor’s Rule, will be higher and sustainable in time.

scholarly journals Monetary Policy Normals, Future and Past

2017 ◽  
Vol 241 ◽  
pp. R5-R12 ◽  
Author(s):  
Peter Sinclair ◽  
William A. Allen
Keyword(s):  
Monetary Policy ◽  
Interest Rates ◽  
Central Banks ◽  
Policy Framework ◽  
Current Policy ◽  
Macroprudential Policy ◽  
New Normal ◽  
Policy Measures ◽  
The Uk ◽  
Monetary Policy Framework

The paper looks at the ‘new normal’ in so many of the world's central banks, and specifically the UK. It examines the position of the monetary policy framework, instrument settings, the underlying models, unconventional policy measures, real interest rates, and the interface with macroprudential policy. It explores both the advantages and challenges involved in any move to return towards pre-crisis arrangements, and offers suggestions for possible ways in which current policy dilemmas might be resolved.

In search for a new anchor: inflation targeting in the czech republic

2000 ◽  
Vol 9 (3) ◽  
Author(s):  
Jiří Jonáš
Keyword(s):  
Monetary Policy ◽  
Czech Republic ◽  
Interest Rates ◽  
Inflation Targeting ◽  
Policy Framework ◽  
The Czech Republic ◽  
Fourth Part ◽  
National Bank ◽  
New Framework ◽  
Monetary Policy Framework

In December 1997 the Czech National Bank introduced a new framework for the conduct of monetary policy, inflation targeting. This article examines the preliminary experience with inflation targeting in the Czech Republic. In the second part, we discuss the reasons that have led the Czech National Bank to introduce this monetary policy framework. Third part describes principal operational features of inflation targeting in the Czech Republic, and discusses the specifics of inflation targeting under the conditions of an economy in transition. Fourth part reviews the conduct of monetary policy under the new regime, focusing particularly on how the new policy framework has affected central bank's decisions about interest rates. Fifth part discusses some reasons why implementation of inflation targeting during the first two years was difficult, and sixth part evaluates the experience with inflation targeting and provides some suggestions for improving the framework.

scholarly journals South African price changes and inflation since 1974: a note on the testing of inflation accuracy

2011 ◽  
Vol 11 (2) ◽  
pp. 229-246
Author(s):  
Jannie Rossouw ◽  
Vishnu Padayachee
Keyword(s):  
Monetary Policy ◽  
Interest Rates ◽  
South African ◽  
Inflation Targeting ◽  
Policy Framework ◽  
Inflation Target ◽  
Price Levels ◽  
Price Movements ◽  
Actual Price ◽  
Monetary Policy Framework

As inflation credibility in South Africa records low readings when measured in terms of inflation credibility barometers, this note aims at assessing whether actual price movements provide any grounds for low inflation credibility.  It compares the price movements of similar items with the rate of inflation over a period of 32 years, i.e. from 1974 to 2006, and discusses the use of an inflation accuracy indicator to compare estimated price levels adjusted by the rate of inflation and actual price levels.  Over the period of comparison no systematic over- or underreporting of changes in prices in terms of the rate of inflation could be detected and the analysis suggests that little or no basis can be found to justify low inflation credibility.  Inflation credibility is more likely than not influenced by the most recent purchasing experiences of consumers.  Doubts concerning the accuracy of inflation figures could nevertheless result in the general public concluding that monetary policy aiming at the achievement of an inflation target brings only the pain of high interest rates without the tangible benefits of lower inflation, thereby jeopardising the usefulness of an inflation-targeting monetary policy framework.

scholarly journals Significant Effect of the Central Bank Digital Currency on the Design of Monetary Policy

2019 ◽  
Vol 8 (1) ◽  
pp. 125-151
Author(s):  
Muhammad Edhie Purnawan ◽  
Retno Riyanti
Keyword(s):  
Monetary Policy ◽  
Central Bank ◽  
Central Banks ◽  
Financial Inclusion ◽  
Monetary Policy Transmission ◽  
Digital Currency ◽  
Policy Transmission

Entering the millennial era, technology has taken a big role in most sectors of life, including the currency as a product that can only be issued by the central bank. This paper examines the significant effect of central bank digital currency (CBDC) on the design of central bank monetary policy. The paper then sets out some benchmark central bank digital currency (CBDC) in several countries. Many central banks are actively exploring the initiation of sovereign digital currencies. Primary results this study is CBDC providing new monetary instruments, CBDC can improve financial inclusion, and CBDC is potential improvements in monetary policy transmission.

scholarly journals Interest Rate Channel of Monetary Policy Transmission Mechanism and Commercial Banks Earnings in Nigeria

2021 ◽  
Vol 4 (3) ◽  
pp. 194-214
Author(s):  
Uzah K. C. ◽  
Clinton A.M. ◽  
Kpagih L.
Keyword(s):  
Monetary Policy ◽  
Interest Rates ◽  
Commercial Banks ◽  
Transmission Mechanism ◽  
Monetary Policy Transmission ◽  
Short Term ◽  
Policy Transmission ◽  
Lending Rate ◽  
Monetary Policy Transmission Mechanism

This study examined the interest rates channel of the monetary policy transmission mechanism and the earnings of commercial banks in Nigeria. The objective was to investigate the extent to which the interest rates channel of the monetary policy transmission mechanism affects the earnings capacity of the quoted commercial banks. Time series data were sourced from annual financial reports of the commercial banks and the Central Bank of Nigeria statistical bulletin’s various issues. Earnings measures such as earnings per share and earnings before interest and tax were modeled as the function of Monetary Policy Rate, Prime Lending Rate, Short-term Savings Rate, Long-term Saving Rate and Maximum Lending Rate. The Ordinary Least Square method of Regression Analysis was used to estimate the relationship between the dependent and the independent variables. Augmented Dickey Fuller Test, Johansen Cointegration Test, Granger Causality Test and Vector Error Correction Test were used to determine the dynamic relationship among the variables. Findings showed that short-term and long-term savings rates have negative effects while monetary policy rate, maximum lending rate and prime lending rate have positive effects on the earnings capacity of Nigerian commercial banks. Therefore, we recommend that interest rate policies should be integrated with the earning objectives of the commercial banks.

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