Abstract
VAR methods suggest that the monetary transmission mechanism is weak and unreliable in low-income countries. But are structural VARs identified via short-run restrictions capable of detecting a transmission mechanism when one exists, under research conditions typical of these countries? Using small DSGEs as data-generating processes, we assess the impact on VAR-based inference of short data samples, macroeconomic volatility, high-frequency supply shocks, and other features of the LIC environment. Many of these features undermine the precision of estimated impulse responses to monetary policy shocks, but their impact on finite-sample bias appears to be relatively modest when identification is valid.
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