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The Monetary Transmission Mechanism at the Sectoral Level

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  • Jean Farès
  • Gabriel Srour
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    Abstract

    This paper relies on simple vector autoregressions to investigate the monetary transmission mechanism in broad sectors of the Canadian economy. Two types of disaggregation are considered: one at the level of final expenditures, and one at the level of production. At the level of final expenditures, it is found that a monetary contraction affects exports relatively quickly, and it affects investment much more substantially than the consumption of goods, while it does not seem to affect services. Not surprisingly, durables respond much more substantially than semi-durables to a monetary contraction, while non-durables do not respond significantly. At the level of production, following a monetary contraction, construction reaches the trough of the cycle first, although, cumulatively, manufacturing reacts twice as strongly. The response of the service sector is significant, but it lags manufacturing.

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    File URL: http://www.bankofcanada.ca/wp-content/uploads/2010/02/wp01-27.pdf
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    Bibliographic Info

    Paper provided by Bank of Canada in its series Working Papers with number 01-27.

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    Length: 36 pages
    Date of creation: 2001
    Date of revision:
    Handle: RePEc:bca:bocawp:01-27

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    Related research

    Keywords: Transmission of monetary policy;

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    References

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    1. Marianne Baxter & Robert G. King, 1999. "Measuring Business Cycles: Approximate Band-Pass Filters For Economic Time Series," The Review of Economics and Statistics, MIT Press, vol. 81(4), pages 575-593, November.
    2. Duguay, Pierre, 1994. "Empirical evidence on the strength of the monetary transmission mechanism in Canada: An aggregate approach," Journal of Monetary Economics, Elsevier, vol. 33(1), pages 39-61, February.
    3. Hayo, Bernd & Uhlenbrock, Birgit, 1999. "Industry effects of monetary policy in Germany," ZEI Working Papers B 14-1999, ZEI - Center for European Integration Studies, University of Bonn.
    4. Joseph H. Haimowitz, 1996. "Monetary policy shocks and price stickiness: an analysis of price and output responses to policy in manufacturing industries," Research Working Paper 96-07, Federal Reserve Bank of Kansas City.
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    Cited by:
    1. Alam, Tasneem & Waheed, Muhammad, 2006. "The monetary transmission mechanism in Pakistan: a sectoral analysis," MPRA Paper 2719, University Library of Munich, Germany, revised 13 Apr 2007.
    2. Héctor F. Bravo & Carlos J. García & Verónica Mies & Matías Tapia, 2003. "Heterogeneity in Monetary Transmission: Sectoral and Regional Effects," Working Papers Central Bank of Chile 235, Central Bank of Chile.
    3. Verónica Mies M. & Felipe Morandé L. & Matías Tapia G., 2002. "Monetary Policy and Transmission Mechanisms: New Elements for an old Debate," Journal Economía Chilena (The Chilean Economy), Central Bank of Chile, vol. 5(3), pages 29-66, December.
    4. Christopher Ragan, 2005. "The Exchange Rate and Canadian Inflation Targeting," Working Papers 05-34, Bank of Canada.

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