Evolution of Monetary Policy Transmission Mechanism in Malawi: A TVP-VAR with Stochastic Volatility Approach
Chance Mwabutwa, Manoel Bittencourt and Nicola Viegi
Authors registered in the RePEc Author Service: Nicola Viegi () and
No 387, Working Papers from Economic Research Southern Africa
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 have 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 a 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: 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)
Pages: 26 pages
New Economics Papers: this item is included in nep-afr, nep-cba, nep-mac and nep-mon
References: Add references at CitEc
Citations: View citations in EconPapers (3) Track citations by RSS feed
Downloads: (external link)
This item may be available elsewhere in EconPapers: Search for items with the same title.
Export reference: BibTeX
RIS (EndNote, ProCite, RefMan)
Persistent link: https://EconPapers.repec.org/RePEc:rza:wpaper:387
Access Statistics for this paper
More papers in Working Papers from Economic Research Southern Africa Contact information at EDIRC.
Bibliographic data for series maintained by Dane Rossenrode ().