Monetary Policy Transmission Heterogeneity: Cross-Country Evidence

By Pragyan Deb, Julia Estefania-Flores, Melih Firat, Davide Furceri, Siddharth Kothari

October 17, 2023

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Format: Chicago

Pragyan Deb, Julia Estefania-Flores, Melih Firat, Davide Furceri, and Siddharth Kothari. Monetary Policy Transmission Heterogeneity: Cross-Country Evidence, (USA: International Monetary Fund, 2023) accessed December 30, 2024

Disclaimer: IMF Working Papers describe research in progress by the author(s) and are published to elicit comments and to encourage debate. The views expressed in IMF Working Papers are those of the author(s) and do not necessarily represent the views of the IMF, its Executive Board, or IMF management.

Summary

This paper revisits the transmission of monetary policy by constructing a novel dataset of monetary policy shocks for an unbalanced sample of 33 advanced and emerging market economies during the period 1991Q2-2023Q2. Our findings reveal that tightening monetary policy swiftly and negatively impacts economic activity, but the effects on inflation and inflation expectations takes time to fully materialize. Notably, there exist significant heterogeneities in the transmission of monetary policy across countries and time, depending on structural characteristics and cyclical conditions. Across countries, monetary policy is more effective in countries with flexible exchange rate regime, more developed financial systems, and credible monetary policy frameworks. In addition, we find that monetary policy transmission is stronger when uncertainty is low, financial conditions are tight and monetary policy is coordinated with fiscal policy—that is, when the stances move in the same direction.

Subject: Central bank transparency, Central Banks, Consumer price indexes, Energy prices, Exchange rate arrangements, Foreign exchange, Inflation, Prices

Keywords: Central bank transparency, Consumer price indexes, Energy prices, Exchange rate arrangements, Global, Heterogeneity, Inflation, Inflation expectation, Monetary policy shock, Monetary policy transmission, Monetary policy transmission heterogeneity, Statedependence, Transmission of monetary policy, Western Europe, Western Hemisphere

Publication Details

Pages:

59
Volume:

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DOI:

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Issue:

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Series:

Working Paper No. 2023/204
Stock No:

WPIEA2023204
ISBN:

9798400257322
ISSN:

1018-5941

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