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The Monetary Transmission Mechanism in the Tropics

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Author Info

  • Andrew Berg
  • Luisa Charry
  • Rafael A Portillo
  • Jan Vlcek

Abstract

Many central banks in low-income countries in Sub-Saharan Africa are modernising their monetary policy frameworks. Standard statistical procedures have had limited success in identifying the channels of monetary transmission in such countries. Here we take a narrative approach, following Romer and Romer (1989), and center on a significant tightening of monetary policy that took place in 2011 in four members of the East African Community: Kenya, Uganda, Tanzania and Rwanda. We find clear evidence of the transmission mechanism in most of the countries, and argue that deviations can be explained by differences in the policy regime in place.

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Bibliographic Info

Paper provided by International Monetary Fund in its series IMF Working Papers with number 13/197.

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Length: 54
Date of creation: 20 Sep 2013
Date of revision:
Handle: RePEc:imf:imfwpa:13/197

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Keywords: Monetary transmission mechanism; Kenya; Uganda; Tanzania; Rwanda; Financial sector; Monetary policy; Cross country analysis; inflation; central bank; monetary fund; money market; aggregate demand; monetary targeting; monetary policy frameworks; reserve requirements; open market operations; transmission of monetary policy; national bank; monetary policies; money market interest rates; discount rate; money demand; monetary aggregates; monetary targets; monetary policy implementation; long-term interest rates; loose monetary policy; monetary system; monetary policy transmission mechanism; monetary standards; monetary regimes; monetary authority; monetary shocks; monetary policy reaction function; monetary union; monetary conditions; monetary policy regime; monetary policy regimes; monetary policy rules; money supply; monetary authorities; liquidity management; monetary financing; monetary frameworks; contractionary monetary policy; lower aggregate demand;

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References

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  1. Andrew Berg & D. Filiz Unsal & Rafael Portillo, 2010. "On the Optimal Adherence to Money Targets in a New-Keynesian Framework," IMF Working Papers 10/134, International Monetary Fund.
  2. Christina D. Romer and David H. Romer., 1989. "Does Monetary Policy Matter? A New Test in the Spirit of Friedman and Schwartz," Economics Working Papers 89-107, University of California at Berkeley.
  3. Michal Andrle & Andrew Berg & R. Armando Morales & Rafael Portillo & Jan Vlcek, 2013. "Forecasting and Monetary Policy Analysis in Low-Income Countries," IMF Working Papers 13/61, International Monetary Fund.
  4. Christina D. Romer & David H. Romer, 2010. "The Macroeconomic Effects of Tax Changes: Estimates Based on a New Measure of Fiscal Shocks," American Economic Review, American Economic Association, vol. 100(3), pages 763-801, June.
  5. Carlo Cottarelli & Angeliki Kourelis, 1994. "Financial Structure, Bank Lending Rates, and the Transmission Mechanism of Monetary Policy," IMF Staff Papers, Palgrave Macmillan, vol. 41(4), pages 587-623, December.
  6. Hamid Reza Davoodi & S. V. S. Dixit & Gabor Pinter, 2013. "Monetary Transmission Mechanism in the East African Community," IMF Working Papers 13/39, International Monetary Fund.
  7. Jason G. Cummins & Kevin A. Hassett & R. Glenn Hubbard, 1994. "A Reconsideration of Investment Behavior Using Tax Reforms as Natural Experiments," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 25(2), pages 1-74.
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Cited by:
  1. Michal Andrle & Andrew Berg & Enrico Berkes & Rafael A Portillo & Jan Vlcek & R. Armando Morales, 2013. "Money Targeting in a Modern Forecasting and Policy Analysis System: an Application to Kenya," IMF Working Papers 13/239, International Monetary Fund.

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