Monetary Policy Effects in Output and Prices: Evidence for the Dominican Republic using a Structural VAR approach

Miguel Jiménez Polanco, Evelio Paredes Encarnación and Francisco Ramírez de León ()

MPRA Paper from University Library of Munich, Germany

Abstract: In this paper we provide new evidence of the transmission mechanism of monetary policy in Dominican Republic using a Structural Vector Autoregressive methodology where we incorporate carefully a set of constraints on contemporary relationships composed of domestic and external variables. Using the model, we estimate the responses of CPI inflation and GDP growth, as well as money demand and the real exchange rate, to exogenous movements in monetary policy. In quantitative terms, an innovation of monetary policy has an effect on growth from the second month and runs for one year. In the case of inflation, the effects begin to be observed from the fifth month after the monetary shock occurred, with an average duration of two years. These responses are in line with economic theory in qualitative terms, and we do not observe the existence of any of the economic puzzles.

Keywords: Structural VAR; Monetary policy shock; liquidity puzzle; price puzzle; exchange rate puzzle. (search for similar items in EconPapers)
JEL-codes: E41 E50 E52 (search for similar items in EconPapers)
Date: 2014-05-02
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