20Feb 2019

TRANSMISSION MECHANISMS OF MONETARY POLICY INETHIOPIA: EVIDENCE FROM STRUCTURAL VAR APPROACH.

  • Research scholar, Department of Economics, Andhra University, Visakhapatnam, India.
  • Professor (retd), Department of Economics, Andhra University, Visakhapatnam, India.
  • Professor, Department of Economics, Andhra University, Visakhapatnam, India.
Crossref Cited-by Linking logo

  • Abstract
  • Keywords
  • References
  • Cite This Article as
  • Corresponding Author

This study sought to examine the relative importance of the different monetary policy transmission channels and its effect on key macroeconomic variables using quarterly time series data covering from 1994/95Q1 to 2017/18Q4 in Ethiopia. Structural Vector Autoregressive model (SVAR) was used to address the issues.All the variables are tested for unit roots using ADF and PP test and model stability and other necessary tests was conducted. The estimation result indicates that the monetary aggregate, exchange rate and credit to the private sector are effective channels of monetary policy transmission in affecting output and inflation in Ethiopia, while the interest rate channel is weak. From a policy perspective, the results indicate that National Bank of Ethiopia is required to continuously monitor the developments of the monetary aggregate, the credit and foreign exchange markets in order to design effective monetary policies. In addition, it would help to the NBE to implement an effective monetary policy for achieving price and exchange rate stability and support sustainable economic growth through the appropriate monetary channels.

  1. AlemayehuGeda (2006).The structure and performance of Ethiopia's financial sector in the pre- and post-reform period with a special focus on banking? UNU-WIDER, United Nations University (UNU), Working Paper.
  2. Amisano, G. and C. Giannini. 1997. Topics in Structural VAR Econometrics. Springer Berlin Heidelberg. Atchariyachanvanich, W. 2004. ?VAR Analysis
  3. Chileshe, P., Mbao, F. Z., Mwanza, B., Mwansa, L., &Zgambo, P. (2014). Monetary Policy Transmission Mechanism in Zambia, 1?49.
  4. Davoodi H. R., Dixit, S., and Pinter, G. (2013). ?Monetary Transmission Mechanism in East African Community: An Empirical Investigation?, IMF Working Paper no. 39/2013
  5. Dungey, M. and Fry, R. (2009). 'The identification of fiscal and monetary policy in a structural VAR', Economic Modelling, 26(6): 1147-1160.
  6. Gujarati (2004), ?Basic Econometrics?, 4th edition, New York: The McGraw-Hill
  7. Kim, S. and N. Roubini. 2000. ?Exchange Rate Anomalies in the Industrial Countries: A Solution with a Structural VAR Approach.? Journal of Monetary Economics 45(3):561-586.
  8. Meltzer Allan H., 1995, ?Monetary, Credit and (Other) Transmission Processes: A Monetarist Perspective?, Journal of Economic Perspectives, Vol. 9 (4), pp. 49-72
  9. Mengesha, L. G., & Holmes, M. J. (2013). Monetary policy and its transmission mechanisms in Eritrea. Journal of Policy Modeling, 35(5), 766?780
  10. Mishra, P., &Montiel, P. (2012). How effective is monetary transmission in low-income countries? A survey of the empirical evidence (IMF Working Paper: WP/12/143). Washington, DC: International Monetary Fund.
  11. Mishkin, F. S. (1995). 'Symposium on the monetary transmission mechanism?, The Journal of Economic Perspectives, 9(4): 3-10
  12. NBE (National Bank of Ethiopia) (2017/18). Annual Report 2017/18. Addis Ababa: NBE.
  13. Tang, H. C. (2006), ?The Relative Importance of Monetary Policy Transmission Channels in Malaysiaˮ, CAMA Working Paper Series, No.23
  14. National Bank of Ethiopia(2009), ?NBE?s Monetary Policy Framework?, Economic Research and Monetary Policy Process, NBE, Addis Ababa, Ethiopia
  15. Nuru (2013), ?An Empirical Investigation on Monetary Policy Transmission Mechanism in Ethiopia?, Research Paper in Economics Department of Addis Ababa University, Ethiopia
  16. Raghavan, M., Silvapulle, P., &Athanasopoulos, G. (2012). Structural VAR models for Malaysian monetary policy analysis during the pre- and post-1997 Asian crisis periods. Applied Economics, 44(29), 3841-3856.
  17. Sims, C. A. (1980), ?Macroeconomics and Reality?, Econometrica, 48 (1) pp 1-48
  18. Tang, H. C. (2006), ?The Relative Importance of Monetary Policy Transmission Channels in Malaysiaˮ, CAMA Working Paper Series, No.23
  19. Aleem, A. (2010), ?Transmission mechanism of monetary policy in Indiaˮ, Journal of Asian Economics, Vol.21 No.2, pp.186?197.
  20. Perera, A., and Wickramanayake, J. (2013), ?Monetary Transmission in The Emerging Country Context: The Case of Sri Lankaˮ, Central Bank of Sri Lanka International Research Conference-2013, pp.1?80.
  21. Wooldridge (2013), ?Introductory Economics: A modern Approach?, Cenage Learning, 5th edition, Michigan State University, United States.

[Abate Yesigat, T.Koteswara Rao and G. Nagaraja. (2019); TRANSMISSION MECHANISMS OF MONETARY POLICY INETHIOPIA: EVIDENCE FROM STRUCTURAL VAR APPROACH. Int. J. of Adv. Res. 7 (Feb). 576-587] (ISSN 2320-5407). www.journalijar.com

abate Yesigat
Research scholar, Department of Economics, Andhra University, Visakhapatnam, India

DOI:

Article DOI: 10.21474/IJAR01/8523      
DOI URL: https://dx.doi.org/10.21474/IJAR01/8523

Download Full Paper

Download PDF No. of Downloads: 69 | No. of Views: 186