Monetary Transmission Mechanism in the East African Community: An Empirical Investigation
IMF Working Papers, February 6, 2013
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- Monetary Transmission Mechanism in the East African Community: An Empirical Investigation
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Bibliographic details
- Authors: Hamid R Davoodi, S. V. S. Dixit, Gabor Pinter
- Published: February 6, 2013
- Series: IMF Working Papers
Authors and Publication
- By Hamid R Davoodi, S. V. S. Dixit, Gabor Pinter
- February 6, 2013
- IMF Working Papers, Working Paper No. 2013/039
- Pages: 59
- Volume: 2013
- Issue: 039
- ISBN: 9781475530575
- ISSN: 1018-5941
- DOI: ---
Research Question and Scope
- Core question: Do changes in monetary policy affect inflation and output in the East African Community (EAC)?
- Methodological note: Empirical investigation using vector autoregression approaches and both standard and non-standard statistical inference methods.
Key Findings
- General strength of monetary transmission:
- Monetary Transmission Mechanism (MTM) tends to be generally weak when using standard statistical inferences.
- MTM is somewhat strong when using non-standard inference methods.
- Cross-country heterogeneity:
- When MTM is present, the precise transmission channels and their importance differ across countries in the EAC.
- Policy instruments and conflicting effects:
- Reserve money and the policy rate, two frequently used instruments of monetary policy, sometimes move in directions that exert offsetting expansionary and contractionary effects on inflation.
- These offsetting movements pose challenges to harmonization of monetary policies across the EAC and to transition to a future East African Monetary Union.
Subjects and Keywords (as provided)
- Subject: Central bank policy rate, Credit, Econometric analysis, Exchange rates, Financial services, Foreign exchange, Monetary base, Money, Vector autoregression
- Keywords: central bank, Central bank policy rate, contractionary monetary policy, Credit, exchange rate, Exchange rates, Global, interest rate channel, Monetary base, Monetary policy, monetary policy authority, monetary policy shock, monetary policy transmission, money multiplier, policy rate, price level, reserve money, rising prices, transmission mechanism, Vector autoregression, vector autoregressions, WP
Output and Recommendations
- The paper offers some suggestions for strengthening the MTM in the EAC (suggestions described in the paper itself).
- Implication for regional policy:
- Heterogeneous transmission channels and offsetting instrument effects complicate monetary-policy harmonization and the design of a common monetary framework for an East African Monetary Union.
IMF Working Paper: "Monetary Transmission Mechanism in the East African Community: An Empirical Investigation", February 6, 2013.