Macroeconomic Effects of Monetary Policy Shocks

Kishan Abeygunawardana, Chandranath Amarasekara and C. D. Tilakaratne

South Asia Economic Journal, 2017, vol. 18, issue 1, 21-38

Abstract: This study examines the impact of monetary policy shocks on output, prices and interest rates in Sri Lanka during the period 2003–2012. It finds a strong transmission of policy rate shocks onto the money market rates and the government securities market yields. However, banking sector interest rates exhibit a smaller and slower impact compared to money and government securities market rates. The study also finds a weak policy interest rate transmission onto the real sector and prices. The direction of relationships between variables and policy shocks is in conformity with the existing theoretical and empirical priors. The existence of a large informal economy, volatile excess market liquidity, shallowness of financial markets, relatively less flexible interest rates on deposit and loan products, and fiscal accommodation by monetary policy at times are identified as reasons for weak transmission.

Keywords: Monetary transmission; vector autoregression; monetary policy shocks (search for similar items in EconPapers)
JEL-codes: E40 E43 E52 E58 (search for similar items in EconPapers)
Date: 2017
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3)

Downloads: (external link)
https://journals.sagepub.com/doi/10.1177/1391561416673507 (text/html)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:sae:soueco:v:18:y:2017:i:1:p:21-38

DOI: 10.1177/1391561416673507

Access Statistics for this article

More articles in South Asia Economic Journal from Institute of Policy Studies of Sri Lanka
Bibliographic data for series maintained by SAGE Publications ().