Abstract
The main objective of this study was to analyze Cape Verdean monetary policy, the rules chosen by the decision makers, its changes and its transmission to the economy. Primarily, we analyzed the dynamics of the most important Cape Verdean macroeconomic time series. By using the Vector Autoregression (VAR) and the Markov Switching Vector Autoregression (MS-VAR) models, we also analyzed and compared how those dynamics were connected to the monetary policy regime adopted during the period of 1991 to 2011. We tried two models, in the second of which was included the effective exchange rate index in order to capture transmissions of the exchange rate channel.. Through the MS-VAR, we also estimated two regimes which were statistically identified. The second regime seems to be more persistent and characterized the entire period from 1993 to 2006, which matches with important changes in Cape Verde's economy. We compare the impulse-response functions estimated by using the VAR model and the impulse-response regime-dependent functions estimated by MS-VAR models. The latter indicated that only in the second regime does a positive shock in the residuals of interest rate have the expected effects, decreasing the output level and the price index. Key words: Monetary policy transmission channels, Cape Verde, MS-VAR.
Highlights
Monetary policy rules are the main components of economic policy decisions nowadays
We present the mechanisms of monetary policy transmission, while the third one provides an analysis of the economy of Cape Verde, focused on its relationship with the management of monetary policy
Is interpreted as being the reaction function of the Bank of Cape Verde (BCV), insofar as it is influenced by changes in the GDP and on the CPI in the economy
Summary
Monetary policy rules are the main components of economic policy decisions nowadays. Their appropriate use can, at the same time, be a source of stability of expectations and can be used to stimulate the economy in times of recession and crisis, mainly through the credit channels. In terms of the economy's stability, it has been observed generally among countries, and in the case of Cape Verde, that central banks try to merge the monetary policy instruments, for instance, those within Foreign-Exchange Reserves, named forex reserves, to control the markets' liquidity conditions in the economy. The monetary policy is ruled by central banks They try to affect the economy by controlling some key monetary variables. Due to the importance of this subject, relevant discussions within the economic literature correspond to the accurate management of such instruments, under nominal and real-side economic contexts
Sign-in/Register to view highlights & summary Talk to us
Join us for a 30 min session where you can share your feedback and ask us any queries you have
Schedule a callDisclaimer: All third-party content on this website/platform is and will remain the property of their respective owners and is provided on "as is" basis without any warranties, express or implied. Use of third-party content does not indicate any affiliation, sponsorship with or endorsement by them. Any references to third-party content is to identify the corresponding services and shall be considered fair use under The CopyrightLaw.
