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Monetary transmission mechanisms in a small open economy: a Bayesian structural VAR approach

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  • Rokon Bhuiyan
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    Abstract

    This paper develops a Bayesian structural VAR model for Canada in order to estimate the effects of monetary policy shocks, using the overnight rate target as the policy instrument. I allow the policy variable and other home and foreign variables to interact with each other contemporaneously. The key finding is that monetary policy affects the real economy through both the market interest rate and the exchange rate. I also find that the Bank of Canada responds to any home and foreign variables that embodies information about future inflation and that external shocks are an important source of output fluctuations.

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    Bibliographic Info

    Article provided by Canadian Economics Association in its journal Canadian Journal of Economics.

    Volume (Year): 45 (2012)
    Issue (Month): 3 (August)
    Pages: 1037-1061

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    Handle: RePEc:cje:issued:v:45:y:2012:i:3:p:1037-1061

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    Cited by:
    1. Louis, Rosmy J & Brown, Ryan & Balli, Faruk, 2009. "Are Mortgage Rates Bubbling Up Trouble for Canadas Metropolitan Housing Sector?," MPRA Paper 17245, University Library of Munich, Germany.
    2. Jean Louis, Rosmy & Brown, Ryan & Balli, Faruk, 2011. "On the Feasibility of Monetary Union: Does It Make Sense to Look for Shocks Symmetry across Countries When None of the Countries Constitutes an Optimum Currency Area?," MPRA Paper 39942, University Library of Munich, Germany.
    3. Finlay, Richard & Jääskelä, Jarkko P., 2014. "Credit supply shocks and the global financial crisis in three small open economies," Journal of Macroeconomics, Elsevier, vol. 40(C), pages 270-276.

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