Monetary Policy Transmission Mechanism Research Articles

Efficacy of Monetary Policy Transmission During the Flexible Inflation Targeting Regime in India

This article builds a Structural Vector Autoregressive model and employs non-recursive identification restrictions to examine the effectiveness of the Monetary policy transmission mechanism in India during the Flexible Inflation Targeting regime (2016–2023). The results indicate that policy rate shocks have a significant negative impact on domestic output and prices during this regime. The findings further, reveal evidence of an exchange rate puzzle during the Flexible Inflation Targeting regime. Our results give credence to the RBI’s move towards a Flexible indicator targeting approach as all the macroeconomic variables of interest, that is, Domestic output and inflation produce plausible estimates in response to a monetary policy shock. JEL Classification: C32, E52, E5, E52, F41

Monetary Policy and Income Distribution in a Multisectoral AB-SFC Model

ABSTRACT Restrictive monetary policy can not only fail to achieve the conventional macroeconomic goal of controlling inflation but also be seen as responsible for the increasing income inequality that has occurred in recent decades. This result is not clear, however, if one remains bounded to the traditional monetary policy transmission mechanisms and conventional models. In this article, we create an agent-based, stock-flow consistent, heterodox disequilibrium model to analyse and evaluate the effects of different basic interest rate levels, especially its distributive effects. Using computer simulations, we show that the basic interest rate plays a key role when firms compete in oligopolistic markets and face financial constraints and costs. In such circumstances, increases in the interest rate can be responsible for price increases, creating the price puzzle problem. In addition, it forces redistribution of income in favour of the financial system and pressures the profit rate of industrial firms, which will raise prices and lower the wage share. The final distributive effect of an interest rate policy will ultimately depend on the power of these agents: the bargaining power of the workers to claim higher wages and the market power of the firms to raise prices.

Monetary Policy and Bank Risk-taking

As the process of global financial integration deepens, the relationship between bank risk-taking and monetary policy has become increasingly close. In recent years, financial markets have been highly volatile and banking risks have become increasingly prominent. Against this background, the relationship between monetary policy and bank risk-taking in China is studied through both theoretical and empirical evidence, and corresponding policy recommendations are put forward. In addition, the role mechanism of monetary policy affecting bank risk is deeply explored through the theoretical aspect of monetary policy and bank risk capacity bearing, and the theoretical basis for the formulation of related policies is provided. Therefore, it explores the impact of bank risk on the transmission mechanism of monetary policy from the theory, and further improves the theory of monetary policy transmission to enhance the effectiveness and stability of monetary policy. The article analyzes and discusses the impact of monetary policy on bank risk-taking capacity, to provide a reference for the development of the financial industry.

Oil price shocks and macroeconomic dynamics in resource-rich emerging economies under regime shifts

How do global oil price fluctuations affect macroeconomic activity and monetary policy in resource-rich emerging economies? This paper tackles this question by developing a unified emerging market/rest-of-the-world DSGE framework featuring Ricardian and Non-Ricardian households, an oil-producing sector, a fuel subsidy programme, and a regime-switching process. The model is estimated using Bayesian methods, allowing us to be agnostic regarding regime shifts in the monetary policy rule and oil price volatility. Using data for Nigeria, we find substantial empirical support for the regime-switching behaviour and discuss how macroeconomic implications of oil price shocks may vary depending on the nature of the shock, monetary policy responses, and the fuel subsidy policy in place. Apart from providing important insights into the monetary policy transmission mechanism, the paper offers a novel, flexible, and functional model for future policy analysis, especially in resource-rich emerging countries.

Extension and Revision of Monetary Policy Transmission Mechanisms and Domestic Real Investment in Nigeria: A Time Series Study Between 1981-2015 by Lucky Anyike Lucky & Uzah Cheta Kingsley.

The study by Lucky Anyike and Uzah Cheta Kingsley examines the impact of monetary policy on domestic real investment in Nigeria, using Gross Fixed Capital Formation to Gross Domestic Product ratio as a proxy for domestic real investment. The study uses various independent variables, including the maximum lending rate, credit to private sector as a percentage of GDP, naira to US dollar exchange rate, savings rate, monetary policy rate, prime lending rate, and Treasury bill rate. The authors conclude that monetary policy has a significant effect on the domestic real investment rate. The extension of this paper examines the impact of both monetary and fiscal policy on domestic real investment in Nigeria, while also considering the influence of political biases and the fact that a significant portion of fiscal policy spending may be allocated to current expenditures rather than capital expenditures. While mainstream economic theory suggests that fiscal policy should have a positive effect on real investment rate, this theory may be challenged in Nigeria due to the specific context and allocation of fiscal resources. We also examine the effect of monetary policy on domestic real investment rate in Nigeria by incorporating additional variables in our analysis.

Extension and Revision of Monetary Policy Transmission Mechanisms and Domestic Real Investment in Nigeria: A Time Series Study Between 1981-2015 by Lucky Anyike Lucky & Uzah Cheta Kingsley

The study by Lucky Anyike and Uzah Cheta Kingsley examines the impact of monetary policy on domestic real investment in Nigeria, using Gross Fixed Capital Formation to Gross Domestic Product ratio as a proxy for domestic real investment. The study uses various independent variables, including the maximum lending rate, credit to private sector as a percentage of GDP, naira to US dollar exchange rate, savings rate, monetary policy rate, prime lending rate, and Treasury bill rate. The authors conclude that monetary policy has a significant effect on the domestic real investment rate. The extension of this paper examines the impact of both monetary and fiscal policy on domestic real investment in Nigeria, while also considering the influence of political biases and the fact that a significant portion of fiscal policy spending may be allocated to current expenditures rather than capital expenditures. While mainstream economic theory suggests that fiscal policy should have a positive effect on real investment rate, this theory may be challenged in Nigeria due to the specific context and allocation of fiscal resources. We also examine the effect of monetary policy on domestic real investment rate in Nigeria by incorporating additional variables in our analysis.

Extension and Revision of Monetary Policy Transmission Mechanisms and Their Impact on Domestic Real Investment in Nigeria: A Time Series Study from 1981 to 2015 by Lucky Anyike and Uzah Cheta Kingsley

The study by Lucky Anyike and Uzah Cheta Kingsley examines the impact of monetary policy on domestic real investment in Nigeria, using the Gross Fixed Capital Formation to Gross Domestic Product ratio as a proxy for domestic real investment. The study uses various independent variables, including the maximum lending rate, credit to the private sector as a percentage of GDP, the naira to US dollar exchange rate, the savings rate, the monetary policy rate, the prime lending rate, and the Treasury bill rate. The authors conclude that monetary policy has a significant effect on the domestic real investment rate. The extension of this paper includes an examination of the impact of fiscal policy on domestic real investment in Nigeria, while also considering the influence of political biases and the fact that a significant portion of fiscal policy spending may be allocated to current expenditures rather than capital expenditures. While mainstream economic theory suggests that fiscal policy should have a positive effect on the real investment rate, this theory may be challenged in Nigeria due to the specific context and allocation of fiscal resources. We also examine the effect of monetary policy on the domestic real investment rate in Nigeria by incorporating additional variables in our analysis.

Research on the potential impact of CBDC on China’s monetary policy framework

Central Bank Digital Currency（CBDC） has the characteristics of traceability and editability. This article respectively elaborates on these two technical characteristics that are different from traditional currencies, and analyzes their impact on the basic elements of the monetary policy framework, namely the ultimate goal of monetary policy, the anchoring method of intermediary goals, monetary policy tools, and the transmission mechanism of monetary policy. After analysis, the research results show that the traceability and editability of CBDC can respectively improve and improve the basic elements of the monetary policy framework, and optimize our country's monetary policy framework as a whole. It is recommended to legally clarify the subjects and procedures that can access CBDC data and edit CBDC algorithms to ensure that the traceability and editability of CBDC are not abused. At the same time, pay close attention to its impact on various basic elements, and promptly Adjust the proportion of these two features in the implementation of monetary policy so that monetary policy can achieve the desired effect.

Research on the Coordination of Bank Capital Adequacy Ratio and Monetary Policy

Capital adequacy ratio and monetary policy are important control measures of financial supervisory authority and monetary authority, respectively. The effective coordination of the two has greatly affected the effectiveness of monetary policy. The article selects the annual data of 16 listed commercial banks in China from 2003 to 2018, and studies the impact of capital adequacy ratio on monetary policy transmission by constructor. listed commercial banks in China from 2003 to 2018, and studies the impact of capital adequacy ratio on monetary policy transmission by constructing a panel regression model. The results show that large state-owned commercial banks play a major role in bank credit channels for monetary policy, and banks with higher capital adequacy ratios are more likely to have a higher capital adequacy ratio. The results show that large state-owned commercial banks play a major role in bank credit channels for monetary policy, and banks with higher capital adequacy ratios are more vulnerable to monetary policy shocks. In addition, the external capital constraint of minimum capital adequacy will cause a multiplier effect when monetary policy is transmitted through credit channels. The multiplier effect produced by joint-stock commercial banks is much smaller than that of large state-owned banks. The multiplier effect produced by joint-stock commercial banks is much smaller than that of large state-owned banks. Therefore, financial supervisory departments must fully consider the interference caused by the capital adequacy ratio on monetary policy, strengthen policy coordination, and unblock the transmission mechanism of Therefore, financial supervision departments must fully consider the interference caused by the capital adequacy ratio on monetary policy, strengthen policy coordination, and unblock the transmission mechanism of monetary policy.

Інструменти грошово-кредитної політики воєнного часу

Wartime poses numerous challenges at the micro and macro levels. One of the key challenges in this context is macro-financial stability. The answer to this challenge can be provided by an effective transmission mechanism of the State’s monetary policy. The aim of the article is to analyze the features of a set of measures taken by the NBU in the period of 2022–2023 in response to the intensification of russian armed aggression in the plane of the transmission mechanism of monetary policy. The article analyzes the challenges of monetary policy in wartime, including financing military needs, ensuring the stability of the banking system, managing international reserves, and exchange rate flexibility. The key measures on the part of the NBU, such as the purchase of government bonds, ensuring the liquidity of the banking system and stimulating economic growth, are highlighted. A significant increase in international reserves, which has become an important factor in macro-economic stability in wartime, is indicated. The specifics of monetary policy in the conditions of wartime, its impact on investment, consumption, and inflationary pressure are considered; the need for close cooperation between the Central Bank and the Government in this area is underlined. Particular attention is paid to the financing of military expenditures and their impact on monetary policy. The measures taken by the NBU to prevent a liquidity crisis and maintain the solvency of banks are analyzed. The contradiction between the financing of the budget deficit and the stability of the national currency is considered. The need to maintain macro-financial stability through a high discount rate and exchange rate adjustment is indicated. The importance of maintaining the stability of the financial system in wartime conditions is emphasized. The proposed study can be useful for researchers and analysts of monetary policy, central banks, governments, and international financial organizations. Prospects for further research are proposed in the direction of integration of Ukraine’s monetary policy in the context of development of the national economy at the post-wartime stage of development.

Điều hành chính sách tiền tệ của Ngân hàng Nhà nước Việt Nam trong năm 2023: Thực trạng và khuyến nghị chính sách

In responses to unexpectedly adverse developments in the international market and internal economic weaknesses, the State Bank of Viet Nam has proactively deployed a comprehensive package of monetary, credit and foreign exchange measures to curb inflation, and support economic growth in 2023. By employing the qualitative method for secondary data, the research aims to evaluate the monetary policy implemented by the State Bank of Vietnam in 2023. Therefore, the research suggests policy recommendations to enhance effectiveness of transmission mechanism of monetary policy in future

Monetary Policy Transmission Mechanism and Regional Effects: An Overview

Monetary Policy Transmission Mechanism and Regional Effects: An Overview

Digital Currencies of Central Banks (CBDC): Advantages and Disadvantages

During the Covid-19 pandemic, there has been a rapid shift from offline global transaction models to digital payment models, along with increased interest in the development of Central Bank Digital Currencies (CBDCs) in various countries. Currently, around 114 countries around the world are researching and developing CBDCs, and these countries account for 95% of global GDP. Some countries have already launched CBD’s and it is very likely that CBDCs will become a part of our lives in the near future. The study discusses the essence and features of the digital currency of the central bank, examines the prospects of its implementation in various socio-economic conditions, examines the advantages and disadvantages of using digital currencies. The authors also compared the digital currency of the central bank and decentralized cryptocurrencies. The authors analyzed the global experience of central banks that explored the possibility of issuing their own digital currencies. The authors of the article use a system-structural analysis to determine approaches to understanding the concept of “central bank digital currency”. The authors also identified the potential advantages of introducing digital currencies, which strengthen the transmission mechanism of monetary policy. Attention is focused on the opportunities provided by digital currencies as an innovative payment tool for financial integration in society. It is argued that the creation of retail central bank digital currencies may pose risks to financial stability that can be minimized through the architecture of a central currency system. The authors proved the importance of using CBDC using an econometric model using the Chinese digital yuan as an example.

Interest Rate Pass-Through in Euro Area Mortgage Markets: The Long Shadow of the Great Financial Crisis

Abstract The tightening of monetary policy in response to the recently observed surge in inflation has focussed attention on the potential impact of changes in policy rates on European mortgage holders. Central to this question is the pass-through of policy rates to the mortgage rate charged in residential markets across the Euro Area as housing costs have contributed significantly to recent inflationary pressures. In particular, how much and how quickly does the change in the Euro Area policy rate pass-through to the mortgage rate in a particular member country’s market? The effectiveness of the monetary policy transmission mechanism has been impaired in a number of ways by the continuing effects of the great financial crisis (GFC). In this article, we seek to examine the manner in which the pass-through relationship between Euro Area policy rates and representative mortgage market rates has been impacted by financial sector considerations such as the degree of concentration in the sector, banks’ holdings of impaired loans, and the overall level of financial stress in the economy. Overall, our empirical findings indicate the level of financial stress experienced during the GFC has had a major impact on the effectiveness of monetary policy transmission in the Euro area. This article suggests that the GFC still has implications for the efficacy of current monetary policy in the Euro Area through several different but related channels. (JEL codes: E52, F45, and G21)

Monetary policy transmission mechanism in Indonesia period 2002: Q1 – 2020: Q4: interest rate and asset price channel

This study aims to determine and analyze the effect of the monetary policy transmission mechanism on the interest rate channel and asset prices in Indonesia in achieving the ultimate goal of price stability throughout the period 2002:Q1 – 2020:Q4. This study uses secondary data related to policy interest rate variables, operational target interest rates, information variables, and final target variables for each channel of the monetary policy transmission mechanism. The analytical tool used in this research is the Vector Error Correction Model (VECM) which is processed using statistical software Eviews 10. The results of the analysis on the monetary policy transmission mechanism model of the interest rate channel indicate that in the short term, investment lending variables have a negative and significant effect on The CPI, meanwhile, the investment credit interest rate variable has a negative and significant effect. The results of the long-term analysis of the monetary policy transmission mechanism model of the interest rate channel show that the interest rate for investment credit, consumption credit, and the BI7DRR interest rate have a positive and significant effect on the CPI, while the variables for consumption credit interest rates, investment credit distribution, and real GDP negative and significant effect on the CPI. The results of the VECM analysis for the monetary policy transmission mechanism model for asset price channels confirm that the positive Error Correction Term (ECT) coefficient indicates that there is no adjustment mechanism towards long-term equilibrium. The results of the classical assumption test for the monetary policy transmission mechanism model of asset price channels also confirm deviations in the assumptions of normality and heteroscedasticity. Therefore, the economic interpretation of the VECM estimation on the monetary policy transmission mechanism model of the asset price channel cannot be carried out and requires the use of other analytical tools to produce a valid model .

Unconventional Monetary Policy and Long‐Term Interest Rates

AbstractThis paper constructs a survey‐based measure capturing the evolution of market's expectations of the Federal Reserve's Large‐Scale Asset Purchases (LSAP) program during 2008–18, and examines the transmission mechanism of unconventional monetary policy. Estimation results suggest that both signaling and portfolio balance channels of the LSAP were important in lowering long‐term interest rates; Moreover, the Federal Reserve's forward guidance policy had led to a gradual extension of market's projections of the duration of the LSAP, making its effects more persistent. Model estimation also explains the 2013 taper tantrum well, and suggests that the LSAP's effects might have declined during QE III.

Transmission Mechanisms of Inflation Targeting: Analysis of Transmission Processes

The purpose of the study is an analytical review of the main theories of inflation targeting and transmission mechanism. Inflation targeting is a monetary policy strategy in which the central bank sets a specific inflation rate as the main target and makes decisions on the interest rate and other measures to achieve this goal. The insufficient capitalization of second-tier banks and the low quality of existing borrowers create difficulties in linking the structural liquidity surplus and require its sterilization by using monetary policy instruments with longer terms. As the economy recovers, the impact of the transmission mechanism on inflation will deepen. Improving the channels of the transmission mechanism by gradually eliminating constraining factors will increase the effectiveness of transferring monetary policy decisions to inflation. The effectiveness of monetary policy instruments largely depends on the effectiveness of transmission channels, through which signals of the influence of the National Bank of the Republic of Kazakhstan (NBK) on internal economic processes, including inflation, are transmitted. The measures taken by the NBK to curb inflation primarily include reducing the depreciation of the tenge by raising the base rate, which ensures the attractiveness of tenge instruments. The base rate of the NBK is the main benchmark for the cost of money and lending to the country's economy. Starting from the government and ending with small and medium-sized businesses, they attract funding based on the base rate of the NBK. This indicates the presence of serious imbalances in the functioning of certain channels of the transmission mechanism of the NBK's monetary policy, along with structural problems of the economy. Impact on inflation expectations. Inflation targeting is aimed at forming and maintaining low and stable inflation expectations among the population and entrepreneurs. Changes in inflation expectations can affect the behavior of consumers and firms, which, in turn, can affect prices and wages.

Transmission Mechanism of Monetary Policy Decisions and the Effects on the Real Economy

The article tackles the role of monetary policy in the context of instabilities happening in the economy over the last years. The major objective of central banks is to provide price stability, thus, maintaining a stable economic framework is their main concern. This issue is particularly important nowadays as countries have been facing multiple economic crises, which have caused waves of uncertainty and emphasized economic vulnerability. Namely for this reason, there are more and more studies that analyse the effect of monetary policy decisions on prices and economic growth (GDP growth). Practice shows that different monetary policy transmission mechanisms are necessary to reach all economic peculiarities of every country.

What are the effects of monetary policy on productivity?

We assess the effects of monetary policy shocks on total factor productivity (TFP) using a cross-country panel of firm-level data. We find that monetary policy shocks have a significant effect on TFP: a 100 basis points contractionary monetary policy shock is associated with a 112 percent decline in TFP at a 6-year horizon. The effects of monetary policy shocks on TFP are stronger for financially constrained or vulnerable firms. Further, we find support for a credit channel transmission mechanism of monetary policy on TFP in that intangible investment reacts adversely to contractionary monetary policy shocks.

Pengaruh Kinerja Perbankan dan Makro Ekonomi terhadap Stabilitas Perbankan pada Bank Pembangunan Daerah di Indonesia tahun 2017-2022

The financial sector depends on banking as a source of the country's economy. Suppose healthy banking conditions and intermediation functions are maintained well. In that case, the money circulation process and monetary policy transmission mechanisms in the economy, mainly through the banking system, will also run well. This research aims to analyze the influence of banking performance and macroeconomic factors on banking stability in Indonesia during 2017-2022. Banking performance factors are LDR, NPL, and CAR, while GDP, inflation, and BI7DRR are macroeconomic factors. This research uses STATA version 17 software, and data is collected using static panel and dynamic panel data. The sample in this study used a purposive sampling technique and obtained 24 regional development banks. This research found that NPL and LDR did not influence banking stability in Indonesia. In contrast, CAR and inflation had a positive and significant impact, and the BI7DRR and GDP variables had a negative and significant influence on banking stability.