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Divisia monetary aggregate and monetary transmission mechanism in the Democratic Republic of Congo (DRC)

Author

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  • B.P. Yemba
  • B. Tang
  • E Kitenge
  • J. Nsumbu

Abstract

While the majority on the effectiveness of monetary policies focus on either interest or money channels, we analyze the effectiveness of a composite monetary instrument: The Divisia Aggregate Index (DMAI). Dynamic effects of the DMAI on other economic factors is analyzed through the Factor Augmented Vector Autoregressive model (FAVAR). The latter address the potential arbitrary selection of variables to incorporate in a standard VAR model, and is built from the ability of factor analysis to summarize a very high number of variables into few factors. The FAVAR is applied to monthly data over the period 01:1996-12:2017 from the Democratic Republic of the Congo. Our empirical results reveal that the DMAI outperforms other monetary policy instruments that use separately interest or money channels, in boosting output and triggering price stability.

Suggested Citation

  • B.P. Yemba & B. Tang & E Kitenge & J. Nsumbu, 2020. "Divisia monetary aggregate and monetary transmission mechanism in the Democratic Republic of Congo (DRC)," Applied Economics Letters, Taylor & Francis Journals, vol. 27(4), pages 291-297, February.
  • Handle: RePEc:taf:apeclt:v:27:y:2020:i:4:p:291-297
    DOI: 10.1080/13504851.2019.1613498
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    Cited by:

    1. Kabir, Anis & Abdul Rehman Shah, Syed Muhammad & Hassan, M. Kabir & Akmal, Muhammad, 2022. "The Transmission Mechanism of Monetary Policy via Bank’ Balance Sheet: An Empirical Study of Dual Banking System in Pakistan," Jurnal Ekonomi Malaysia, Faculty of Economics and Business, Universiti Kebangsaan Malaysia, vol. 56(2), pages 129-140.
    2. Betchani H. M. Tchereni & Ahmad Makawa & Fredrick Banda, 2022. "Effectiveness of the Asset Price Channel as a Monetary Policy Transmission Mechanism in Malawi: Evidence from Time Series Data," International Journal of Economics and Financial Issues, Econjournals, vol. 12(5), pages 160-168, September.

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