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

  • Rokon Bhuiyan
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    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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    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
    Contact details of provider: Postal: Canadian Economics Association Prof. Steven Ambler, Secretary-Treasurer c/o Olivier Lebert, CEA/CJE/CPP Office C.P. 35006, 1221 Fleury Est Montréal, Québec, Canada H2C 3K4
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