Financial inclusion and monetary policy effectiveness: A sustainable development approach of developed and under-developed countries

The study explores the causal relationship between monetary policy effectiveness and financial inclusion in developed and under-developed countries. Structural Vector Auto-regressive techniques have been inducted to explore the relationship between monetary policy effectiveness and financial inclusion. The study covers the secondary data of 10 developed and 30 underdeveloped countries throughout 2004–2018. It is concluded that monetary policy effectiveness and financial inclusion do not have a contemporaneous impact on each other. Nevertheless, the reduced-form Vector Auto-regressive witness the reverse causality between financial inclusion and monetary policy effectiveness in developed countries. Thus, effective monetary policy enhances financial inclusion in a country, and a higher degree of financial inclusion lowers the inflation rate and makes monetary policy effective. One way causality from monetary policy effectiveness to financial inclusion can be observed in under-developed countries. Using the Structural Vector auto-regressive technique and financial inclusion index composed of three-dimension to examine the relationship of monetary policy effectiveness and financial inclusion in developed and developing countries is considered the study’s significant contribution.

A Review of the Impact of External Shocks on Monetary Policy Effectiveness in Non-WAEMU Countries

In this paper, the extant literature on the impact of external shocks on monetary policy effectiveness with reference to non-WAEMU countries is reviewed. The importance of this literature review is to provide contemporary perspectives to scholars and policymakers on the relevance of the incidence of external shocks to the effectiveness of monetary policy with reference to non-WAEMU countries. The literature reviewed in this study shows that, on the whole, the extent and the degree to which external shocks are transmitted to the domestic economy substantially depend on a plethora of features, namely the absence of exchange rate flexibility; a strong export concentration, especially with respect to commodities; the level of global economic integration; restricted capacities of production; the absence of competitiveness in exports; over-reliance on foreign aid; foreign reserves that are not adequate and capital account openness.

What do we (not) know about the effectiveness of the monetary policy tools in the modern world?

Monetary policy played a dominant role in ensuring macroeconomic stability in the advanced economies for two decades, from the mid-1980s to 2007, and appeared to be a very effective tool for smoothing economic cycles and maintaining price stability. After the global financial crisis of 2007—2009 the effectiveness of monetary policy was put under question, since it did not succeed in ensuring rapid economic recovery in the advanced economies despite massive use of both conventional and unconventional monetary tools. The paper addresses the factors which are responsible for the weakening of the monetary policy effectiveness including global disinflation, the Phillips curve flattening, the effective lower bound problem and the neutral real rate decline. Unconventional monetary policy tools, such as the “helicopter money”, targeted refinancing and other prospective tools, are analyzed. We critically assess recommendations of the Modern Monetary Theory (MMT) as the most consistent heterodox theory. Based on the analysis, we draw conclusions about the possibility of monetary policy weakening in Russia in the foreseeable future and desirability of the implementation of the hybrid fiscal-monetary measures.

Determinants of Non-Performing Assets of Commercial Banks in India

Banks’ credit growth continues to decelerate in India due to huge non-performing assets (NPAs) overhangs in banks. Using the panel data methodology, this study empirically analyzed the determinants of NPAs of scheduled commercial banks in India during 2009-2020. Results indicated that the excessive credit growth in the past increased the surge in the current NPAS. The economic slowdown also aggravated loan delinquencies in Indian commercial banks. While higher priority sector lending created higher loan delinquencies, higher banks size and higher profitability reduced it. This study suggested that counter capital buffer, dynamic provisioning and a sound credit appraisal NPA improved the financial stability and monetary policy effectiveness. These findings are useful for policymakers, bankers and other stakeholders to make appropriate strategies to resolve the NPA issue in India.

Policy responses to shocks and monetary effectiveness under inflation targeting: The Philippine case

This article examines how monetary policy responses to economic shocks and monetary policy effectiveness have changed in the Philippines since inflation targeting was implemented in 2002. The study makes use of a structural vector autoregression to estimate financial and monetary policy shocks, among other shocks, based on an identification strategy similar to Gilchrist and Zakrajsek [2012] and Bassetto et al. [2016]. A Philippine financial conditions index (FCI) purged of monetary influences then decomposed according to instrument or market is used to aid estimation and analysis. Results of the recursive vector autoregressions (VAR) comparing pre-inflation-targeting and inflation-targeting periods reveal stronger and more systematic policy responses to non-financial demand shocks, partial and transitory accommodation of supply shocks, and greater exchange rate flexibility initially under the new monetary policy regime. There is, however, an observed weakening of monetary policy responses to financial disturbances and monetary policy transmission to growth likely related to episodes of strong capital inflows.