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

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  • Rokon Bhuiyan

Abstract

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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  • Rokon Bhuiyan, 2012. "Monetary transmission mechanisms in a small open economy: a Bayesian structural VAR approach," Canadian Journal of Economics, Canadian Economics Association, vol. 45(3), pages 1037-1061, August.
  • Handle: RePEc:cje:issued:v:45:y:2012:i:3:p:1037-1061
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    Citations

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    Cited by:

    1. Mala Raghavan & George Athanasopoulos & Param Silvapulle, 2016. "Canadian monetary policy analysis using a structural VARMA model," Canadian Journal of Economics, Canadian Economics Association, vol. 49(1), pages 347-373, February.
    2. Tafirenyika Sunde & Olusegun A. Akanbi, 2016. "Sources of unemployment in Namibia: an application of the structural VAR approach," International Journal of Sustainable Economy, Inderscience Enterprises Ltd, vol. 8(2), pages 125-143.
    3. Finlay, Richard & Jääskelä, Jarkko P., 2014. "Credit supply shocks and the global financial crisis in three small open economies," Journal of Macroeconomics, Elsevier, vol. 40(C), pages 270-276.
    4. Jean Louis, Rosmy & Brown, Ryan & Balli, Faruk, 2011. "On the feasibility of monetary union: Does it make sense to look for shocks symmetry across countries when none of the countries constitutes an optimum currency area?," Economic Modelling, Elsevier, vol. 28(6), pages 2701-2718.
    5. Louis, Rosmy J & Brown, Ryan & Balli, Faruk, 2009. "Are Mortgage Rates Bubbling Up Trouble for Canadas Metropolitan Housing Sector?," MPRA Paper 17245, University Library of Munich, Germany.
    6. Margaux MacDonald & Michal Popiel, 2016. "Unconventional monetary policy in a small open economy," Working Papers 1367, Queen's University, Department of Economics.
    7. Christian Rohe & Matthias Hartermann, 2015. "The role of external shocks for monetary policy in Colombia and Brazil: A Bayesian SVAR analysis," CQE Working Papers 4215, Center for Quantitative Economics (CQE), University of Muenster.
    8. Adebayo Augustine Kutu & Harold Ngalawa, 2016. "Monetary Policy Shocks And Industrial Output In Brics Countries," SPOUDAI Journal of Economics and Business, SPOUDAI Journal of Economics and Business, University of Piraeus, vol. 66(3), pages 3-24, July-Sept.
    9. repec:bla:ecorec:v:93:y:2017:i:302:p:465-483 is not listed on IDEAS

    More about this item

    JEL classification:

    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • F37 - International Economics - - International Finance - - - International Finance Forecasting and Simulation: Models and Applications

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