nep-cba New Economics Papers
on Central Banking
Issue of 2015‒04‒02
twenty-two papers chosen by
Maria Semenova
Higher School of Economics

  1. Capital Controls, Monetary Policy, and Balance Sheets in a Small Open Economy By Shigeto Kitano; Kenya Takaku
  2. Comparing Inflation and Price Level Targeting: the Role of Forward Guidance and Transparency By Honkapohja, Seppo; Mitra, Kaushik
  3. The macroeconomic effects of the sovereign debt crisis in the euro area By Stefano Neri; Tiziano Ropele
  4. Explaining the Strength and Efficiency of Monetary Policy Transmission: A Panel of Impulse Responses from a Time-Varying Parameter Model By Jakub Mateju
  5. What Measures Chinese Monetary Policy? By Rongrong Sun
  6. Financial crisis, US unconventional monetary policy and international spillovers By Qianying Chen; Andrew Filardo; Dong He; Feng Zhu
  7. The international bank lending channel of monetary policy rates and quantitative easing : credit supply, reach-for-yield, and real effects By Morais,Bernardo; Peydró,José-Luis; Ruiz Ortega,Claudia
  8. Credit, Financial Stability, and the Macroeconomy By Taylor, Alan M.
  9. Modelling Inflation Volatility By Eric Eisenstat; Rodney Strachan
  10. Foreign exchange intervention: strategies and effectiveness By Nuttathum Chutasripanich; James Yetman
  11. Inflation surprises and inflation expectations in the euro area By Marcello Miccoli; Stefano Neri
  12. The transmission of monetary policy in EMEs in a changing financial environment: a longitudinal analysis By Emanuel Kohlscheen; Ken Miyajima
  13. Designing a Financial Stability Architecture for a Regionally Integrated Financial Space: The European Experience. By Heinrich, Gregor
  14. Advanced-country policies and emerging-market currencies : the impact of U.S. tapering on India's Rupee By Ikeda,Yuki; Medvedev,Denis; Rama,Martin G.
  15. Banking and Currency Crises: Differential Diagnostics for Developed Countries By Mark Joy; Marek Rusnak; Katerina Smidkova; Borek Vasicek
  16. Measuring Core Inflation in South Africa By Stan du Plessis, Gideon du Rand & Kevin Kotzé
  17. Were Hayek’s Monetary Policy Recommendations Inconsistent?* By Martin Komrska; Marek Hudík
  18. The failure of the monetary model of exchange rate determination By Dinçer Afat; Marta Gómez-Puig; Simón Sosvilla-Rivero
  19. The Role of Regulatory Arbitrage in U.S. Banks’ International Lending Flows: Bank-Level Evidence By Judit Temesvary
  20. Exchange Rate Pass-Through in Eastern Europe: a Panel Bayesian VAR Approach By Valeriu Nalban
  21. Liquidity Squeeze, Abundant Funding and Macroeconomic Volatility By Enisse Kharroubi

  1. By: Shigeto Kitano (Research Institute for Economics & Business Administration (RIEB), Kobe University, Japan); Kenya Takaku (Faculty of Business, Aichi Shukutoku University)
    Abstract: We develop a small open economy, New Keynesian model that incorporates a financial accelerator in combination with liability dollarization. Applying a Ramsey-type analysis, we compare the welfare implications of an optimal monetary policy under flexible exchange rates and an optimal capital control policy under fixed exchange rates. In an economy without the financial accelerator, an optimal monetary policy under flexible exchange rates is superior to an optimal capital control policy under fixed exchange rates. In contrast, in an economy with the financial accelerator, an optimal capital control under fixed exchange rates yields higher welfare than an optimal monetary policy under flexible exchange rates.
    Keywords: Capital control, Monetary policy, Balance sheets, Ramsey policy, Exchange rate regimes, Small open economy, Nominal rigidities, New keynesian, DSGE, Welfare comparison, Incomplete markets, Financial accelerator, Financial frictions
    JEL: E44 E52 F32 F41
    Date: 2015–03
  2. By: Honkapohja, Seppo; Mitra, Kaushik
    Abstract: We examine global dynamics under learning in New Keynesian models with price level targeting that is subject to the zero lower bound. The role of forward guidance is analyzed under transparency about the policy rule. Properties of transparent and non-transparent regimes are compared to each other and to the corresponding cases of inflation targeting. Robustness properties for different regimes are examined in terms of the domain of attraction of the targeted steady state and volatility of inflation, output and interest rate. We analyze the effect of higher inflation targets and large expectational shocks for the performance of these policy regimes.
    Keywords: Adaptive learning; monetary policy; zero interest rate lower bound
    JEL: E52 E58 E63
    Date: 2015–03
  3. By: Stefano Neri (Bank of Italy); Tiziano Ropele (Bank of Italy)
    Abstract: This paper uses a Factor Augmented Vector Autoregressive model to assess the macroeconomic impact of the euro-area sovereign debt crisis and the effectiveness of the European Central Bank's conventional monetary policy. First, our results show that in the countries most affected by the crisis, the tensions in sovereign debt markets made credit conditions significantly worse and weighed on economic activity and unemployment. The disruptive effects of the sovereign tensions propagated to the core economies of the euro area through the trade and confidence channels. Second, "modest" (in the sense of Leeper and Zha, 2003) counterfactual simulations suggest that the accommodative monetary policy stance of the ECB helped to moderate the negative effects of the sovereign debt tensions.
    Keywords: sovereign debt crisis, FAVAR models, Bayesian methods, monetary policy
    JEL: C32 E44 E52 F41
    Date: 2015–03
  4. By: Jakub Mateju
    Abstract: This paper analyzes both the cross-sectional and time variation in aggregate monetary policy transmission from nominal short-term interest rates to the price level. Using Bayesian TVP-VAR models where structural monetary policy shocks are identified by a mixture of short-term and sign restrictions, I show that monetary policy transmission has become stronger over the last few decades. This finding is robust across both developed and emerging economies. Monetary policy sacrifice ratios (the output costs of disinflation induced by monetary policy tightening) have decreased over the last four decades. Exploring the cross-country and time variation in monetary policy responses using panel regressions, I show that after a country adopted inflation targeting, monetary transmission became stronger and sacrifice ratios decreased. In periods of banking crises, the transmission from monetary policy interest rate shocks to prices is weaker and the related output costs are higher. Furthermore, countries with higher domestic private credit to GDP feature stronger transmission of interest rate shocks.
    Keywords: Monetary policy transmission, sign-restrictions, TVP-VAR
    JEL: C54 E52
    Date: 2014–04
  5. By: Rongrong Sun (University of Nottingham Ningbo China and Hong Kong Institute for Monetary Research)
    Abstract: This paper models the PBC's operating procedures in a two-stage vector autoregression framework. We decompose changes in policy variables into exogenous and endogenous components in order to find a "clean" monetary policy indicator whose changes are mainly policy induced. Our main findings are twofold. First, the PBC¡¦s procedures appear to have changed over time. Second, its operating procedures are neither pure interest rate targeting nor pure reserves targeting, but a mixture of the two. There are a variety of indicators that appear to contain information about the monetary policy stance. It is therefore preferable to use a composite measure to gauge the stance of Chinese monetary policy. We construct a new composite indicator of the overall policy stance, consistent with our model. A comparison with existing indicators suggests that the composite indices, rather than individual indicators, perform better in measuring the stance of Chinese monetary policy.
    Keywords: Monetary Policy, VAR, Operating Procedures, Exogenous (Endogenous) Components
    JEL: E52 E58
    Date: 2015–03
  6. By: Qianying Chen; Andrew Filardo; Dong He; Feng Zhu
    Abstract: We study the impact of US quantitative easing (QE) on both the emerging and advanced economies, estimating a global vector error correction model (GVECM). We focus on the effects of reductions in the US term and corporate spreads. The estimated effects of QE are sizeable and vary across economies. First, we find the QE impact from reducing the US corporate spread to be more important than that from lowering the US term spread, consistent with Blinder's (2012) argument. Second, counterfactual exercises suggest that US QE measures, especially the cumulative effects of successive QE measures starting with the sizeable impact of the early actions, countered forces that could have led to episodes of prolonged recession and deflation in the advanced economies. Third, the estimated effects on emerging economies are diverse but generally larger than those found for the United States and other advanced economies. The estimates suggest that US monetary policy spillovers contributed to overheating in Brazil, China and some other emerging economies in 2010 and 2011, but supported their respective recoveries in 2009 and 2012. These heterogeneous effects point to unevenly distributed benefits and costs of monetary policy spillovers.
    Keywords: emerging economies; financial crisis; global VAR; international monetary policy spillovers; quantitative easing; unconventional monetary policy
    Date: 2015–03
  7. By: Morais,Bernardo; Peydró,José-Luis; Ruiz Ortega,Claudia
    Abstract: This paper identifies the international credit channel of monetary policy by analyzing the universe of corporate loans in Mexico, matched with firm and bank balance-sheet data, and by exploiting foreign monetary policy shocks, given the large presence of European and U.S. banks in Mexico. The paper finds that a softening of foreign monetary policy increases the supply of credit of foreign banks to Mexican firms. Each regional policy shock affects supply via their respective banks (for example, U.K. monetary policy affects credit supply in Mexico via U.K. banks), in turn implying strong real effects, with substantially larger elasticities from monetary rates than quantitative easing. Moreover, low foreign monetary policy rates and expansive quantitative easing increase disproportionally more the supply of credit to borrowers with higher ex ante loan rates -- reach-for-yield -- and with substantially higher ex post loan defaults, thus suggesting an international risk-taking channel of monetary policy. All in all, the results suggest that foreign quantitative easing increases risk-taking in emerging markets more than it improves the real outcomes of firms.
    Keywords: Access to Finance,Debt Markets,Bankruptcy and Resolution of Financial Distress,Banks&Banking Reform,Economic Stabilization
    Date: 2015–03–19
  8. By: Taylor, Alan M.
    Abstract: Since the 2008 global financial crisis, and after decades of relative neglect, the importance of the financial system and its episodic crises as drivers of macroeconomic outcomes has attracted fresh scrutiny from academics, policy makers, and practitioners. Theoretical advances are following a lead set by a fast-growing empirical literature. Recent long-run historical work has uncovered a range of important stylized facts concerning financial instability and the role of credit in advanced economies, and this article provides an overview of the key findings.
    Keywords: banks; financial crisis; financial history; leverage; macroeconomic history; macroprudential policy; monetary policy; recessions
    JEL: E02 E31 E32 E42 E44 E51 E58 F32 F42 G01 G20 G28 N10 N20
    Date: 2015–03
  9. By: Eric Eisenstat (University of Bucharest, Romania; RIMIR); Rodney Strachan (School of Economics, and Centre for Applied Macroeconomic Analysis, University of Queensland; The Rimini Centre for Economic Analysis, Italy)
    Abstract: This paper discusses estimation of US inflation volatility using time varying parameter models, in particular whether it should be modelled as a stationary or random walk stochastic process. Specifying inflation volatility as an unbounded process, as implied by the random walk, conflicts with priors beliefs, yet a stationary process cannot capture the low frequency behaviour commonly observed in estimates of volatility. We therefore propose an alternative model with a change-point process in the volatility that allows for switches between stationary models to capture changes in the level and dynamics over the past forty years. To accommodate the stationarity restriction, we develop a new representation that is equivalent to our model but is computationally more efficient. All models produce effectively identical estimates of volatility, but the change-point model provides more information on the level and persistence of volatility and the probabilities of changes. For example, we find a few well defined switches in the volatility process and, interestingly, these switches line up well with economic slowdowns or changes of the Federal Reserve Chair. Moreover, a decomposition of inflation shocks into permanent and transitory components shows that a spike in volatility in the late 2000s was entirely on the transitory side and a characterized by a rise above its long run mean level during a period of higher persistence.
    Date: 2014–12
  10. By: Nuttathum Chutasripanich; James Yetman
    Abstract: Foreign exchange intervention has been actively used as a policy tool in many economies in Asia and elsewhere. In this paper, we examine two intervention rules (leaning against exchange rate misalignment and leaning against the wind), utilised with varying degrees of transparency, based on a simple model with three kinds of agents: fundamentalists, speculators and the central bank. We assess the effectiveness of these rules against five criteria: stabilising the exchange rate, reducing current account imbalances, discouraging speculation, minimising reserves volatility and limiting intervention costs. Overall we find no dominant intervention strategy. Intervention that reduces exchange rate volatility, for example, also reduces the risks of speculation, creating a feedback loop and potentially leading to high levels of speculation, reserves volatility and intervention costs. These intervention costs will be especially large when exchange rate movements are driven by interest rate shocks, although some degree of opaqueness can help to reduce them. Survey evidence from BIS (2005, 2013) indicates that central banks follow a range of different strategies when intervening in foreign exchange rates. Given the trade-offs that different strategies entail in our model, this is not surprising.
    Keywords: foreign exchange intervention; exchange rates; speculation
    Date: 2015–03
  11. By: Marcello Miccoli (Bank of Italy); Stefano Neri (Bank of Italy)
    Abstract: Since 2013 the inflation rate in the euro area has fallen steadily, reaching all-time lows at the end of 2014. Market-based measures of inflation expectations (such as inflation swaps) have also declined to extremely low levels, which suggests increasing concern about the credibility of the ECB in maintaining price stability. Inflation releases have often surprised analysts on the downside. Our analysis shows that market-based inflation expectations, at medium-term maturities, are affected by these ‘surprises’, over and above the impact of changing macroeconomic conditions and oil prices.
    Keywords: inflation, inflation expectations, inflation swap contracts
    JEL: E31 E52 C22 C31
    Date: 2015–03
  12. By: Emanuel Kohlscheen; Ken Miyajima
    Abstract: The departure from the Modigliani-Miller conditions, due for instance to market incompleteness, asymmetric information or taxation, tends to increase the importance of indirect channels by which monetary policy affects the level of economic activity in emerging market economies (EMEs). The bank lending channel highlighted by Bernanke and Blinder (1988) is a prominent example of such indirect effect of monetary policy. In this study we investigate how the bank lending channel acts above and beyond the traditional money channel that most macroeconomic models emphasize. We find that, particularly in EMEs with high bank reliance, changes in the volume of bank credit are important drivers of fixed capital formation. Using micro-level bank balance sheet data, we then show how monetary policy and sovereign risk premia affected bank credit growth in EMEs between 2001 and 2013. We find that both, changes in the monetary policy stance and changes in risk premia have had significant effects on credit volumes. Furthermore, we show that these effects tend to affect smaller banks more strongly. Our results suggest that the accommodative monetary policies that have been seen recently were contributing factors to the rapid expansion of credit in many EMEs.
    Keywords: monetary policy, bank credit, emerging markets, risk premia
    Date: 2015–03
  13. By: Heinrich, Gregor
    Abstract: Any discussion on improving the existing arrangements for assessing and managing financial risks and in particular supervising the relevant institutions will also need to address the question on which institution should be responsible for which task and for which sector of the financial system, how these institutions should be organized and, if there are several, how they should interact with each other. Based on the example of the European Union, this paper shows the gradual change from a rather loose rather idealistic cooperative framework among entirely independ-ent institutions, over the right to contribute to the functioning of policies set by others, on to the Single Supervisory Mechanism, a centralized structure in which – at least for the banking sector - the ECB takes on a rather powerful role of policy making, oversight and enforcement. (The paper was presented at the conference, “Financial Stability, Interconnectedness, and risk assessment in the Caribbean”, Port of Spain, Trinidad and Tobago, 19-20 March 2015.)
    Keywords: financial stability, financial stability architecture, Caribbean, CARICOM, CCMF, European Union, European Central Bank, ECB, SSM, Single Supervisory Mechanism
    JEL: F33 F55 G28 H12 K23
    Date: 2015–03
  14. By: Ikeda,Yuki; Medvedev,Denis; Rama,Martin G.
    Abstract: The global financial crisis and its aftermath have triggered extraordinary policy responses in advanced countries. The impacts of these policy responses?from asset price bubbles to currency depreciations?have often been felt in the developing world. As tapering talk evolves into actual withdrawal of quantitative easing in the United States, and as the Euro Zone launches its own quantitative easing program, there are good reasons to be concerned about the financial stability of emerging economies. India's experience with U.S. tapering offers insights into what to expect. This paper estimates the contribution of external and domestic factors to short-term fluctuations in the value of the Indian rupee between 2004 and 2014, using a rich dynamic model that controls for a large number of exchange rate determinants. The paper finds that a global surprise factor, more than domestic vulnerabilities, was the main driver of the large rupee depreciation in summer 2013. With the surprise factor gone, further normalization of U.S. monetary policy is unlikely to have significant effects on the rupee exchange rate.
    Keywords: Economic Theory&Research,Debt Markets,Currencies and Exchange Rates,Economic Stabilization,Emerging Markets
    Date: 2015–03–23
  15. By: Mark Joy; Marek Rusnak; Katerina Smidkova; Borek Vasicek
    Abstract: We identify a set of "rules of thumb" that characterise economic, financial and structural conditions preceding the onset of banking and currency crises in 36 advanced economies over 1970–2010. We use the Classification and Regression Tree methodology (CART) and its Random Forest (RF) extension, which permits the detection of key variables driving binary crisis outcomes, allows for interactions among key variables and determines critical tipping points. We distinguish between basic country conditions, country structural characteristics and international developments. We find that crises are more varied than they are similar. For banking crises we find that low net interest rate spreads in the banking sector and a shallow or inverted yield curve are their most important forerunners in the short term, whereas in the longer term it is high house price inflation. For currency crises, high domestic short-term rates coupled with overvalued exchange rates are the most powerful short-term predictors. We find that both country structural characteristics and international developments are relevant banking crisis predictors. Currency crises, however, seem to be driven more by country idiosyncratic, short-term developments. We find that some variables, such as the domestic credit gap, provide important unconditional signals, but it is difficult to use them as conditional signals and, more importantly, to find relevant threshold values.
    Keywords: Banking crises, binary classification tree, currency crises, early warning indicators
    JEL: C14 E44 F37 F47 G01
    Date: 2014–12
  16. By: Stan du Plessis, Gideon du Rand & Kevin Kotzé
    Abstract: Measures of core inflation convey critical information about an economy. They have a direct effect on the policy-making process, particularly in inflation-targeting countries, and are utilized in forecasting and modelling exercises. In South a Africa the prices indices on which inflation is based have been subject to important structural breaks following changes to the underlying basket of goods and the methodology for constructing price indices. This paper seeks to identify a consistent measure of core inflation for South Africa using trimmed-means estimates, measures that exclude changes in food and energy prices, dynamic factor models and wavelet decompositions. After considering the forecasting ability of these measures, which provide an indication of expected second-round inflationary effects, traditional in-sample criteria were used for further comparative purposes. The results suggest that wavelet decompositions provided a useful measure of this critical variable.
    Keywords: wavelets, trimmed means, dynamic factor mdoels, forecasting, core inflation
    JEL: C43 E31 F31 E52
    Date: 2015
  17. By: Martin Komrska (University of Economics, Prague); Marek Hudík (Centre for Theoretical Study, Charles University and Academy of Sciences, Prague)
    Abstract: Contrary to the received view, we maintain that Hayek’s monetary policy recommendations were not inconsistent. The prevalent perception of early Hayek as the money stream stabilizer and late Hayek as the price level stabilizer is attributable to an unjustified normative interpretation of Hayek’s positive analysis. We argue that in his contributions to monetary theory, Hayek took the goals of monetary policy as exogenously given and analysed the efficiency of different means to achieve these goals. Hayek’s allegedly inconsistent switch from being a critic to an advocate of price level stabilization is explained by a change in the issues on which he focused, rather than by a change in his theoretical views. We also claim that Hayek was always aware that every practical monetary policy involves difficult trade-offs and was thus reluctant to impose his own value judgments about what people should strive for.*We would like to thank Pavel Potužák for his helpful comments on an earlier draft. Any mistakes are, of course, ours.
    Keywords: F. A. Hayek; monetary policy; Austrian business cycle theory; price level stabilization; money stream stabilization
    JEL: B22 B31 B53
    Date: 2014–07
  18. By: Dinçer Afat (Department of Economic Theory - Universitat de Barcelona); Marta Gómez-Puig (Department of Economic Theory - Universitat de Barcelona); Simón Sosvilla-Rivero (Department of Quantitative Economics, Universidad Complutense de Madrid)
    Abstract: In this paper, we test three popular versions of the monetary model (flexible price, forward-looking and real interest differential models) for the OECD member countries by applying Johansen cointegration technique. Based on country-by-country analysis, we conclude that monetary models do not provide the expected results. We reveal several shortcomings of the models and examine the building blocks of the fundamental version. Although researchers always blame the deviations from purchasing power parity as the reason for the failure of the monetary model, our analysis indicates that invalidity of Keynesian money demand function is also responsible for unfavourable results.
    Keywords: exchange rate, flexible price monetary model, forward-looking monetary model, real interest differential model, money demand, purchasing power parity
    JEL: F31 F41
    Date: 2015–05
  19. By: Judit Temesvary
    Abstract: This paper examines how cross-border differences in the stringency of bank regulations affect U.S. banks’ international activities. The analysis relies on a unique bank-level dataset on the globally most active U.S. banks’ balance sheet as well as their cross-border, foreign affiliate lending and foreign market entry choices in 82 foreign countries in the 2003-2013 period. Results show that U.S. banks are significantly more likely to enter foreign markets with relatively laxer bank capital and disclosure requirements, and exit foreign markets with relatively stricter deposit insurance schemes and more restrictions on activities. Banks substitute away from foreign affiliate lending (via subsidiaries in the foreign country) towards cross-border lending (originating from the U.S.) in foreign countries with more powerful and independent bank regulators and limits on activities.
    Keywords: International bank lending, Cross-border regulatory arbitrage, Foreign market entry and exit, Balance sheet effects
    JEL: F3 F4 G2
    Date: 2015–03
  20. By: Valeriu Nalban (The Bucharest University of Economics Studies)
    Abstract: In this paper we employ a Panel Bayesian VAR model for a homogeneous group of Eastern European countries, namely Romania, Czech Republic, Hungary and Poland, in order to estimate the exchange rate pass-through coefficients to producer and consumer price indices (proxied by PPI and HICP respectively). The method is particularly useful at efficiently combining country-specific and cross-sectional information, mitigating at the same time the small sample problem. The priors are specified such that conjugacy is preserved, allowing to take repeated draws from conditional posterior distributions using a version of Gibbs sampler.The five-variable baseline model (industrial production index, euro nominal exchange rate, unit value index, producer price index and harmonized index of consumer prices) is estimated using January 2004 - June 2014 data and Cholesky factorization for disentangling structural shocks. Average Central Europe countries exchange rate pass-through to producer prices is larger than to consumer prices at all horizons, particularly at short- and medium-terms (about 0.3 for PPI at any horizon versus 0 for HICP in short-run and 0.2 in medium- and long-run). This result is compatible with the production chain structure assumed when ordering the variables and also with the results usually obtained in relevant literature. Individual countries coefficients are generally below the group mean for Romania (with the exception of HICP at shorter horizons) and Poland, while Czech Republic and Hungary display somehow higher pass-troughs.Compared to individually estimated Bayesian VAR models with Minnesota type prior, only Czech Republic display pass-through coefficients well outside the 68% confidence bands associated to the Panel model. Except for Poland, both PPI and CPI respond less to nominal exchange rate shocks than in the baseline model, particularly beyond the short-run horizons.When explicitly allowing for monetary policy shocks by adding 3 months money market interest rates data, the average pass-through to PPI is some 5 percentage points higher in the medium-run and 10 percentage points higher in the long-run, while the effects of exchange rate shocks on HICP are only marginally enlarged beyond six months horizons. Individual countries display heterogeneous results when compared to the baseline specification, although the differences are not particularly large. In addition, the interest rates model sharpens the inference, reducing model's uncertainty.
    Keywords: Panel Bayesian VARs, simulations, exchange rate pass-through, emerging economies
    JEL: C11 C15 C33
    Date: 2014–12
  21. By: Enisse Kharroubi
    Abstract: This paper studies the choice between building liquidity buffers and raising funding ex post, to deal with liquidity shocks. We uncover the possibility of an inefficient liquidity squeeze equilibrium. Agents typically choose to build smaller liquidity buffers when they expect cheap funding. However, when agents hold smaller liquidity buffers, they can raise less funding because of limited pledgeability, which in the aggregate depresses the funding cost. This incentive structure yields multiple equilibria, one being an inefficient liquidity squeeze equilibrium where agents do not build any liquidity buffer. Comparative statics show that this inefficient equilibrium is more likely when the supply of funding is large, and/or when aggregate shocks display low volatility. Last, the effectiveness of policy options to restore efficiency is limited because the net gain to intervention decreases with the availability of funding. In other words, policy becomes ineffective when the equilibrium becomes inefficient.
    Keywords: Liquidity, Monetary Policy, Pledgeable Income, Reinvestment, Self-Insurance
    Date: 2015–03
  22. By: Kalu E. Uma (Department of Economics and Development Studies, Federal University, Ndufu-Alike, Ikwo, Ebonyi State); Benson M. Ogbonna (Department of Economics, Abia State University, Uturu, Abia State); Paul Obidike (Department of Accountancy, Management & Entrepreneurial Studies, Federal University Ndufu Alike Ikwo)
    Abstract: The paper highlights monetary policy transmission mechanism in Nigeria focusing on empirical studies and happenings in the country that retarded the efficiency of the Central Bank of Nigeria over the years in the pursuant of effective transmission mechanism. The empirical reviews from studies show that interest rate, credit channels and exchange rate are among the channels of monetary policy transmission to the economy. It also highlights some of the problems that imposed a serious debility to effective transmission in Nigeria. The authors made some suggestions for improvement, among which includes: the Central Bank must persevere legally, morally and otherwise to make the economy a cashless one. The low patronage of banking services by many Nigerians is a stumbling block in effective control of money supply and has contributed to incessant inflation in the country; any form of disguise or indirect interference by the government has to be put to an end; and the instruments of monetary policy such as interest rate and exchange that are known to be effective in some sectors should be properly managed and monitored.
    Keywords: Mechanism, monetary, overview, policy, transmission
    JEL: E52
    Date: 2014–10

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