Monetary Transmission Mechanism in the East African Community: An Empirical Investigation

Hamid Davoodi, S. V. S. Dixit and Gabor Pinter

No 2013/039, IMF Working Papers from International Monetary Fund

Abstract: Do changes in monetary policy affect inflation and output in the East African Community (EAC)? We find that (i) Monetary Transmission Mechanism (MTM) tends to be generally weak when using standard statistical inferences, but somewhat strong when using non-standard inference methods; (ii) when MTM is present, the precise transmission channels and their importance differ across countries; and (iii) 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—posing challenges to harmonization of monetary policies across the EAC and transition to a future East African Monetary Union. The paper offers some suggestions for strengthening the MTM in the EAC.

Keywords: WP; price level; contractionary monetary policy; exchange rate; central bank; money multiplier; Monetary policy; reserve money; policy rate; vector autoregressions; monetary policy shock; transmission mechanism; monetary policy authority; interest rate channel; rising prices; monetary policy transmission; Monetary base; Central bank policy rate; Vector autoregression; Credit; Exchange rates; Global (search for similar items in EconPapers)
Pages: 59
Date: 2013-02-06
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Citations: View citations in EconPapers (61)

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