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Dynamic Effects of Monetary Policy Shocks in Malawi

Harold Ngalawa () and Nicola Viegi ()

No 217, Working Papers from Economic Research Southern Africa

Abstract: This paper sets out to investigate the process through which monetary policy affects economic activity in Malawi. Using innovation accounting in a structural vector autoregressive model, it is established that monetary authorities in Malawi employ hybrid operating procedures and pursue both price stability and high growth and employment objectives. Two operating targets of monetary policy are identified, viz., bank rate and reserve money, and it is demonstrated that the former is a more effective measure of monetary policy than the latter. The study also illustrates that bank lending, exchange rates and aggregate money supply contain important additional information in the transmission process of monetary policy shocks in Malawi. Furthermore, it is shown that the floatation of the Malawi Kwacha in February 1994 had considerable effects on the country’s monetary transmission process. In the post-1994 period, the role of exchange rates became more conspicuous than before although its impact was weakened; and the importance of aggregate money supply and bank lending in transmitting monetary policy impulses was enhanced. Overall, the monetary transmission process evolved from a weak, blurred process to a somewhat strong, less ambiguous mechanism.

JEL-codes: E52 E58 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-afr, nep-cba, nep-mac and nep-mon
Date: 2011
References: View complete reference list from CitEc
Citations: View citations in EconPapers (22) Track citations by RSS feed

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Journal Article: DYNAMIC EFFECTS OF MONETARY POLICY SHOCKS IN MALAWI (2011) Downloads
Working Paper: Dynamic Effects of Monetary Policy Shocks in Malawi (2011)
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Persistent link: https://EconPapers.repec.org/RePEc:rza:wpaper:217

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