Monetary policy transmission mechanism in post-communist economies: Evidence from Uzbekistan

This study aims to evaluate the transmission mechanisms of monetary policy in a post-communist economy using structural vector autoregression (SVAR) model. We constructed two SVAR models employing both recursive and non-recursive approaches to identify monetary policy shocks and analyze how other variables in the system respond to these shocks. The findings of the study are as follows: First, the recursively identified structure produced price and exchange rate puzzles, where output and inflation reacted to unexpected monetary policy shocks in a manner inconsistent with theoretical expectations. Second, a non-recursive structure under zero contemporaneous restrictions was applied to address the anomalies found with the recursive scheme. The nonrecursive model generated outcomes that resolved both the price and exchange rate puzzles. Third, the exchange rate is more responsive to monetary policy disturbances than interest rates in the non-recursive model, as reflected by impulse response functions (IRFs), leading us to conclude that the exchange rate channel operates more effectively than the interest rate channel in Uzbekistan.