Evolution of Monetary Policy Transmission Mechanism in Malawi: A TVP-VAR Approach
Chance Mwabutwa (),
Manoel Bittencourt and
Nicola Viegi ()
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Chance Mwabutwa: Department of Economics, University of Pretoria
No 201327, Working Papers from University of Pretoria, Department of Economics
This paper investigates the evolution of monetary transmission mechanism in Malawi between 1981 and 2010 using a time varying parameter vector autoregressive (TVP-VAR) model with stochastic volatility. We evaluate how the responses of real output and general price level to bank rate, exchange rate and credit shocks changed over time since Malawi adopted financial reforms in 1980s. The paper finds that inflation, real output and exchange rate responses to monetary policy shocks changed over the period under review. Importantly, beginning mid-2000, the monetary policy transmission performed consistently with predictions of economic theory and there is no evidence of price puzzle as found in the previous literature on Malawi. However, the statistical significance of the private credit supply remains weak and this calls for more financial reforms targeting the credit market which can contribute to monetary transmission and promote further economic growth in Malawi.
Keywords: Monetary Policy Transmission Mechanism; Price Puzzle; Financial Reforms; Bayesian TVP-VAR (search for similar items in EconPapers)
JEL-codes: C49 D12 D91 E21 E44 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-afr, nep-cba and nep-mon
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Journal Article: EVOLUTION OF MONETARY POLICY TRANSMISSION MECHANISM IN MALAWI: A TVP-VAR APPROACH (2016)
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Persistent link: https://EconPapers.repec.org/RePEc:pre:wpaper:201327
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