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Monetary Policy Transmission Mechanisms in Pacific Island Countries

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Author Info

  • Jonathan C. Dunn
  • Matt Davies
  • Yongzheng Yang
  • Yiqun Wu
  • Shengzu Wang

Abstract

During the global financial crisis, central banks in Pacific island countries eased monetary policy to stimulate economic activity. Judging by the ensuing movements in commercial bank interest rates and private sector credit, monetary policy transmission appears to be weak. This is confirmed by an empirical examination of interest rate pass-through and credit growth. Weak credit demand and underdeveloped financial markets seem to have limited the effectiveness of monetary policy, but the inflexibility of exchange rates and rising real interest rates have also served to frustrate the central banks’ efforts despite a supporting fiscal policy. While highlighting the importance of developing domestic financial markets in the long run, this experience also points to the need to coordinate macroeconomic policies and to use all macroeconomic tools available in conducting countercyclical policies, including exchange rate flexibility.

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Bibliographic Info

Paper provided by International Monetary Fund in its series IMF Working Papers with number 11/96.

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Length: 24
Date of creation: 01 Apr 2011
Date of revision:
Handle: RePEc:imf:imfwpa:11/96

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Related research

Keywords: Pacific Island Countries; Interest rates; Exchange rate regimes; Exchange rates; monetary policy; inflation; central bank; monetary fund; aggregate demand; foreign exchange; price stability; effective exchange rates; monetary policy transmission mechanisms; reserve requirements; monetary transmission; money supply; money market; macroeconomic stability; inflationary pressure; monetary stability; transmission of monetary policy; money markets; monetary policies; monetary economics; real interest rates; discount rate; lower inflation; monetary policy objectives; price inflation; monetary policy frameworks; average inflation; monetary instruments; domestic money markets; high inflation; price level; open market operations; real exchange rates; rediscount rate; domestic money market; terms of trade shock; monetary target; inflation objective; printing money; reserve positions; inflation rate; monetary authorities; demand for money; monetary objectives; monetary transmission mechanism; terms of trade;

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References

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  1. Kumar, Saten & Singh, Rup, 2009. "Some Empirical Evidence on the Demand for Money in the Pacific Island Countries," MPRA Paper 18703, University Library of Munich, Germany.
  2. Alessandro Rebucci & Marco A Espinosa-Vega, 2003. "Retail Bank Interest Rate Pass-Through," IMF Working Papers 03/112, International Monetary Fund.
  3. Norman Loayza & Klaus Schmidt-Hebbel, 2002. "Monetary Policy Functions and Transmission Mechanisms: An Overview," Central Banking, Analysis, and Economic Policies Book Series, in: Norman Loayza & Klaus Schmidt-Hebbel & Norman Loayza (Series Editor) & Klaus Schmidt-Hebbel (Series (ed.), Monetary Policy: Rules and Transmission Mechanisms, edition 1, volume 4, chapter 1, pages 001-020 Central Bank of Chile.
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Cited by:
  1. Yongzheng Yang & Hong Chen & Shiu raj Singh & Baljeet Singh, 2013. "The Pacific Speed of Growth," IMF Working Papers 13/104, International Monetary Fund.
  2. Patrizia Tumbarello & Ezequiel Cabezon & Yiqun Wu, 2013. "Are the Asia and Pacific Small States Different from Other Small States?," IMF Working Papers 13/123, International Monetary Fund.

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