Channels Of Transmission Mechanism Research Articles

Impact of Credit Channel of Monetary Policy Transmission Mechanism on the Nigerian Economy

This study is predicated on the long age debate among scholars and Theorists with respect to monetary policy transmission mechanism. Some schools of thought believe that money does not matter and monetary policy is ineffective in influencing real economic variables such as employment and real output. While other schools claim that money matters and monetary policy can influence real economic activities at least in the short run. The last school of thought is those in between these two opponents who believe that the link between money and output is actually reverse causation not the other way round. These controversies revolve on the issue of ascertaining the channel of transmitting monetary policy actions into the economy. Therefore, using the Vector Autoregressive (VAR) Model, this study sought to empirically analyze credit channel of monetary policy transmission mechanism in Nigeria. Applying the time series data spanning the periods of 56 years 1960-2016, the empirical analysis found four interesting results as follows: firstly, all the credit channels variables were non stationary at levels but appears stationary at first difference. Secondly, there is a short run link between credit channel and Nigeria economic growth. Thirdly, there exists a long run equilibrium relationship between credit channel and economic growth in Nigeria. Fourthly, there is evidence of causality running from credit channel to economic growth in Nigeria. Thus, the study came out with one stylized fact about monetary policy transmission mechanism in Nigeria as follows: that the credit channel of monetary policy transmission mechanism are fully effective, operational and promote economic activities in Nigeria and that the effective propagation of monetary policy in Nigeria are done through the credit channel. Based on the findings above, the study recommends that the policy approach of encouraging, emphasizing and arousing the good management of credit channel of the transmission mechanism in Nigeria should be vigorously pursued. This has the ability to trigger up growth in various sectors of the Nigerian economy.

Assessing the efficiency of the monetary transmission mechanism channels in Ukraine

The paper is focused on the performance features of the monetary transmission mechanism (MTM) in Ukraine as a small open economy. To assess the efficiency of monetary transmission channels, it is important to disclose their interaction, define criteria and tools for analyzing their impact on key macroeconomic parameters. The study deepens approaches to the analysis of the intensity of using monetary, credit, interest rate and exchange rate channels in Ukraine in 2005–2020 and detects violations in the functioning of the MTM. Using economic and statistical methods and regression models, the influence of the main channels of monetary transmission on real GDP growth rate and inflation in Ukraine was assessed. It was concluded that it is advisable to clarify the conditions for increasing the efficiency of MTM in Ukraine; also, the parameters of forecasting the intensification of its channels in the medium and long term are determined. The paper highlights measures to improve the formation of volume and structure of the monetary base and monetary aggregates, improve credit and investment climate, and increase the efficiency of monetary regulation. Moreover, interest rate and foreign exchange policies of the central bank to transmit impulses from the decisions of monetary authorities to market participants were substantiated.

РОЛЬ КРЕДИТНОГО КАНАЛУ В МЕХАНІЗМІ МОНЕТАРНОЇ ТРАНСМІСІЇ В УКРАЇНІ

The article provides a comprehensive analysis of the functioning of the credit channel of the monetary transmission mechanism in Ukraine in 2005–2020, defines its role, the main tasks and features of its use in the system of modern monetary regulation of the economy. It has been substantiated that the main task of managing the credit channel of the transmission mechanism is to increase the efficiency of monetary regulation by transferring monetary impulses from the central bank to the real sector of the economy in order to ensure economic growth. Criteria are determined, basic indicators are proposed and methods for assessing the effectiveness of the functioning of the credit channel of monetary transmission are improved. As a result of calculations, it was proved that in 2005–2020 in Ukraine, the credit channel of the monetary transmission mechanism had a positive effect on the growth rate of the monetary aggregate M3 and the growth rate of the real gross domestic product, while the increase in government bond yields and the share of non-performing loans had a negative impact on lending activity and the rate of lending to the economy. The main reasons for the low efficiency of using the credit channel were the deterioration of the financial condition of enterprises and households, a decrease in their creditworthiness, low demand for investment resources, a high proportion of non-performing loans, significant volumes of government bonds issued by the government and high credit risks, which made it difficult for the central bank to adopt effective decisions and constrained economic growth. The main directions of improving the management and increasing the efficiency of the functioning of the credit channel of monetary transmission in Ukraine on the basis of improving the credit and investment climate, improving the methodology for assessing credit risks, increasing the efficiency of monetary regulation and the implementation by the central bank of a monetary policy adequate to economic conditions have been identified. The forecast parameters and conditions for the effective functioning of the credit channel of the monetary transmission mechanism in Ukraine in the medium and long term are proposed.

EXCHANGE RATE CHANNEL OF TRANSMISSION MECHANISM OF THE NBU’S MONETARY POLICY

The essence of exchange rate channel of transmission mechanism of the monetary policy is considered. Pearson’s, Spearman’s, and Kendall’s correlation coefficients were applied to calculate the relationship between variables. It is emphasized that the exchange rate channel of the monetary policy transmission mechanism reflects its impact on output and price level due to changes in the exchange rate of the national currency. It is noted that the hryvnia devaluation has always been observed against the background of economic crises and declining exports. In all three cases of sharp devaluation, the crises were accompanied by a significant drop in exports of goods, which reduced the NBU's reserve assets. In general, the NBU conducted interventions to counteract excessive fluctuations in the national currency exchange rate, selling currency during periods of devaluation and buying it during periods of revaluation. In addition, there is an inverse relationship between the discount rate and the official hryvnia exchange rate from January 2015 to October 2019. In other words, the higher the discount rate, the lower the USD price expressed in UAH is. In addition, the Pearson’s correlation coefficients indicate a strengthening of the relationship between the official hryvnia exchange rate against the U.S dollar and the lagged discount rate. In other words, raising the interest rate in the current month will have a long-term impact on the value of the dollar, expressed in UAH. The strongest link between the discount rate and the official hryvnia exchange rate is in the first leg, with the link loosening in the next. The values of the Kendall correlation coefficients show the same as the previous coefficients. First, the relationship between the official hryvnia exchange rate against the U.S dollar and lag values of discount rate is increasing. Second, similarly, the relationship between the USD/UAH exchange rate and the interbank lending rate is increasing. Third, the link between the CPI lag values and the official hryvnia exchange rate is increasing. Fourth, the relationship between the hryvnia against the US dollar and the NBU's interventions is insignificant. Fifth, there is a link between rising exports and the devaluation of the hryvnia against the US dollar. Keywords : exchange rate, transmission mechanism, monetary policy, exchange rate channel, discount rate.

Global financial economic crisis transmission on the transition economy

PurposeThe global financial crisis hit the economy of the Kyrgyz Republic by the third wave of its transmission in early 2009. The purpose of this study is to examine the impact of the global financial economic crisis on the transition economy of the Kyrgyz Republic. As there is a low level of the Kyrgyz Republic’s integration into the global financial and economic processes, it is obvious that channels of transmissions are different.Design/methodology/approachThe empirical model is the vector autoregression approach. The quarterly data from 2005 to 2013 of the remittances from abroad, trade volumes, exchange rates, credits, deposits and liquidity of the banking system, gross domestic product (GDP) and foreign direct investment (FDI) were used in the empirical analysis.FindingsThe authors found a significant positive relation between transmission channels such as remittances flow, banking sector, international trade and GDP within the first six months. Thus, a decline in the aforementioned variables has a significant affirmative effect on the country’s GDP. Notwithstanding, the exchange-rate channel adversely influences GDP. Thereby, the depreciation of the national currency leads to an increase in GDP.Originality/valueThe study findings allow the Kyrgyz policymakers to foresee the global crisis transmission through the primary channels of transmission mechanism. Nevertheless, a decrease of the deposit level by 1 per cent leads to 2.91 per cent decline in FDI inflows. On the contrary, an increase of the exchange rate by 1 per cent leads to 1.54 per cent decrease in imports.

THE APPLICATION OF MONETARY INCENTIVE POLICY IN CURRENT ECONOMIC CONDITIONS

The aim of the article is studying the process of implementation of promotional monetary policy by investigation of the functionality of the transmission mechanism channels. The paper singles out the peculiarities of the implementation of monetary policy in well-developed and developing countries. The subject of the study is: the structure of the monetary transmission mechanism; the functionalities of both traditional and non-traditional channels and their influence on promotional monetary policy are defined. An analysis of the existing structure of the transmission mechanism made it possible to determine the strength and speed of feedback between participants and the degree of influence on the real sector and to formulate appropriate proposals for its adjustment or activation. In addition, it is indicated that, under the present conditions, it is non-traditional channels that acquire special significance; also, the main factors that have shifted the priority vector in their direction are defined. Alongside this, the study presents modern modifications of promotional monetary policy and their significance for the modern economic world. Methodology. The classic methods of scientific research are used in the article, among which are the following: observation, abstraction, comparison, systematic approach, analysis, and synthesis. Results. The conducted study clearly demonstrates that, in the process of changing financial relations, the significance of the transmission mechanism channels in the process of implementing promotional monetary policy changed, too. At the same time, it is expedient to single out the reasons that lead to a change in the role of some channels of monetary transmission in relation to others. Current research and developments are not limited to the above structure of the transmission mechanism channels. Moreover, their list is constantly replenished, which is indicative of the existence of transformational processes affecting the financial sector. The approaches to the structure of the transmission mechanism and the functionality of its channels, determined in this article, make it possible to assess the effectiveness of implementing monetary policy. Practical implications. Clarified complex causes of destructive nature, which initially level out practically any actions with regard to the system approach, namely, the absence of the integrated combination of interests of all social and economic spheres: state-business-society. Also, the results of the study provide an opportunity to identify further trends in the changing transmission mechanism channels in the implementation process of monetary policy and use this knowledge by planning and forecasting for the functionality of transmission channels. Value/originality. This research was carried out within the framework of the scientific work of the Department of Theoretical and Applied Economics of the National Technical University of Ukraine “Igor Sikorsky Kyiv Polytechnic Institute” (No. 0112U007817) on the topic: “Globalization of industrial capacity formation trends in the terms of post-industrial transformation”.

State stabilization macroeconomic policy: features and prospects for Ukraine

The research reveals the essence of the process of state stabilization macroeconomic policy, which includes two main directions: fiscal policy influence on the budget balancing and monetary regulation of economy through the transmission mechanism improvement and monetary regime defining. The key problems connected with the state budget deficit are investigated. The state and dynamics of the Ukraine state budget are considered. The ways of overcoming the consequences of state budget imbalances are analyzed. The concept of transmission mechanism was defined. Were shown and explained all the key channels of monetary transmission used in Ukraine and in the world, and were suggested the ways to improve their efficiency, which in future may lead to the improvement of the economic situation in Ukraine. Was justified the necessity of improving the transmission mechanism for the monetary policy strategic objectives achieving. Were given the recommendations on how to improve the channels of transmission mechanism in Ukraine with the aim of increasing the effectiveness of monetary stabilization policy. The basic monetary regimes implementation in various countries of the world and the resulting consequences are researched. The benefits of inflation targeting regime for the state’s monetary policy effectiveness enhancing are justified. Recommendations for further implementation of the inflation targeting regime in Ukraine are provided.

Var — analysis of global financial economic crisis impact on public budget and unemployment: evidence from the economy of the Kyrgyz republic

The Global financial crisis hit the economy of the Kyrgyz Republic by the third wave of its transmission in the early of 2009. The article examines the impact of the Global financial economic crisis on the public budget and unemployment of the Kyrgyz Republic. We analyzed the transmission of the crisis on the public budget firstly and its effect on unemployment level by using the vector autoregression approach (VAR) and quarterly data for 2005–2013 within the framework of IS-LM model for small open economies with floating exchange rate. There is an inverse relationship between the public budget and remittances inflow, liquidity level, volume of deposits, and exchange rate. As a result of the study, the fall in remittances inflows, liquidity level of the banking system, depreciation of the national currency lead to an increase in public revenue. Therefore, the increase in public spending during the crisis period, with the aim of unemployment reduction, may be considered as a crucial policy. The study result allows to policy-makers to exactly know what channels of transmission mechanism transfer the Global crisis on the public budget and its effect on unemployment level of the republic in order to undertake anticrisis macroeconomic policy. The final result of the study indicates that the increase of unemployment level by 1 % requires the increase of public spending by 0.63 %.

Effectiveness of Expectation Channel of Monetary Transmission Mechanism in Inflation Targeting System: An Empirical Study for Turkey

Monetary policy can affect economy through out various transmission mechanisms. One of this transmission mechanisms is expectations channel. The monetary policy can get involved in expectation channel of transmission mechanism by affecting the process of expectations formation. Because the results of policies to be implemented vary according to the expectations, the main challenge in monetary policy is to correctly manage expectations. Because of the fact that only the systematic component of monetary policy (estimated component) can affect forward looking expectations, systematic behavior of the central bank has a critical role in determining the economic consequences of monetary policy. In this study, the effectiveness of expectation channel of transmission mechanism was analyized by VAR model. According the results TCMB cannot affect inflation expectations via both the inflation targets and the policy interest. On the other hand, inflation expectations are affected significantly from actualized inflation rates and exchange rates. Keywords: Central bank, Expectations, Monetary transmission mechanisms, Monetary policy

Modified Blocked Effect Method to Test Strength of Monetary Policy Transmission Channels

The Ramey (1993) method (label here “Blocked Effect Approach”) is widely used in the empirical papers on monetary policy transmission mechanism channels. Its broad application is due to the relatively simple way, providing a criteria for identifying monetary transmission channels. In doing so it imposes too many restrictions on the parameters of the underlying VAR system, typically used for this type of empirical analysis. However, “blocked effect approach” may not coincide with the theoretical restrictions required by a proper definition of a monetary transmission channel. In this paper an attempt is made to define a statistical procedure to remedy certain shortcomings of this method. This modification also relaxes the unnecessary restriction and direct to a more precise measurement of channel strength. Finally we apply this method to credit channel of monetary policy transmission in the US economy. The modified blocked effect can distinguish channel strength between different variables in different sub-sample periods. Our empirical results show that it is an active channel of monetary policy; it effect output in the short-run and inflation with 12 quarters lag.

Assessment of the monetary policy transmission mechanism in the new EU member states

In order to completely understand and analyse the transmission mechanism, it is necessary to observe all factors conditioning its overall efficiency as well as the efficiency of individual transmission channels. This paper focuses on countries that have successfully passed the transition period and have experience with implementing different monetary policy regimes. The evolution of monetary policy resulted in the development of instruments through which central banks influence the real sector activity by means of a transmission mechanism. The empirical analysis based on econometric tools investigates the efficiency of transmission mechanism channels, or more precisely, their significance in the monetary targeting regime. With a view to reaching the conclusion about the direction in which it is necessary to develop the structure of the real and financial sector, aimed at a better functioning of monetary policy instruments, the paper features a theoretical analysis of the characteristics of the monetary policy in the developed economies, as well as the structural characteristics of these economies.

Monetary Conditions in the Philippines: An Assessment from DOLS and ARDL

This article examines key transmission mechanism channels for the Philippines over 1983:1-2010:4 using ARDL and DOLS. Results show evidence of cointegration between the real Gross Domestic Product, short- and long interest rates, exchange rate, claims on private sectors, and share prices. Relatively small coefficient of share price implies the existence of insider trading and the lack of local liquidity and limited private participation. The sign of interest rates implies the domination of the money market by the government securities. The economy may be exposed to the risk of recession when BSP increases the short rate continuously as the long rate will react conversely.

Do Credit Channel and Interest Rate Channel Play Important Role in Monetary Transmission Mechanism in Indonesia?: A Structural Vector Autoregression Model

This paper assesses the importance role of two monetary transmission mechanism channels in managing inflation and contributing to economic growth, by employing Structural Vector Autoregression (SVAR) model. The monetary transmission channels are interest rate channel and credit-bank lending channel. The model is then solved by implementing forecasting error variance decomposition to investigate the contribution of each variables to both inflation and economic growth. It is shown that interest rate channel plays important role in monetary transmission mechanism for maintaining inflation but has limited role in the economic growth. In the other hand, credit-bank lending channel can effectively affect economic growth.

Monetary Policy Transmission Mechanism in Poland - What Do We Know in 2011?

In the light of the results of empirical studies presented in the Report and the literature available it may be concluded that the form of the monetary policy transmission mechanism in Poland is consistent with structural features of the Polish economy and coincides with those characteristic of more developed European economies, e.g. the euro area. Although the financial intermediation system is less developed than in the euro area, Poland, like the new EU Member States is characterised by a lower degree of rigidity and more frequent price adjustments (as a result of a relatively higher and more volatile inflation), due to which there exist no grounds for stating that the transmission mechanism is weaker in these countries than in the euro area countries. The characteristics of the monetary policy transmission mechanism in Poland, which changed considerably in the transition period along with the development of the financial system and changes in the monetary policy, displayed symptoms of stabilisation in 2004/2005-2007. Poland’s accession to the European Union, resulting in a major reduction of macroeconomic uncertainty, was one of the factors that contributed to this process. The monetary policy transmission mechanism was, however, disturbed by the financial crisis. Its impact on the transmission mechanism remains strong, which is demonstrated notably by the analysis of the effectiveness of transmission mechanism channels.

Effects of Financial Structure and Financial Development on Economic Growth: A Case Study of Pakistan

The object behind this study is to explore the long run association between economic growth and financial structure in Pakistan context. For this purpose we have used the data from the period of 1975 to 2008, and applied Johansen cointegration technique to find out the long run association among the selected variables. Weighted sum of structure activity and structure size of the financial sector is used as a proxy of financial structure. The study finds that the proxy of financial structure is positively correlated with economic growth. The result also pointed out that the channel of transmission mechanism of financial development to growth is efficient to the financial sector not the volume of investment.

Monetary Policy Transmission Mechanism in Fiji: An Empirical Analysis of the Quarterly Model

Fiji’s central bank, the Reserve Bank of Fiji (RBF) since its inception in 1983, has been pursuing monetary policy with the mandated objectives of economic growth with price stability and an adequate level of exchange reserves. In 1988, as part of financial sector reforms, RBF discontinued the use of direct instruments and switched on to employment of indirect instruments for influencing interest rates. For the past two decades, RBF has been conducting regular open market type operations in its own paper, known as RBF Notes for liquidity management. The yield to maturity of its 91-day RBF Notes determined through tender system, known as policy indicator rate (PIR) signals the monetary policy stance of RBF. This paper undertakes an empirical study of transmission mechanism of monetary policy over a 17–year period (1990Q1-2006Q4). Using variance decomposition and impulse response analysis, we find that money channel is the most important one amongst the four channels of transmission mechanism investigated.

How does monetary policy transmission mechanism work in Fiji?

The study aims to examine the impact of changes in policy variables namely, monetary aggregate (M1), exchange rate and interest rate on two monetary goal variables, namely output and price level in Fiji from 1970 to 2006 by applying the procedures of variance decomposition and impulse response functions. We conclude that the money channel is the most effective channel of transmission mechanism among the three channels.

The credit channel of the transmission mechanism in the Republic of Croatia

The influence of monetary trends on real movements is manifested through several channels of transmission mechanism. This paper analyses the functioning of the credit channel and the distribution of commercial banks loans to different sectors in the Republic of Croatia. The analysis shows quite clearly how much more banks prefer to grant credits to households than they do to business sector. Implications of these monetary-credit flows on economic activity in the Republic of Croatia can be observed on the strong growth of personal consumption component of the GDP as well as on growth of imports of goods and services.