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Does Financial Structure Matter in Determining the Effectiveness of Monetary Policy? A Comparison Between Civil-Law and Common-Law Countries

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  • Zukarnain Zakaria

    () (Management Department, Faculty of Management and Human Resource Development, Universiti Teknologi Malaysia, 81300 UTM Skudai, Johor, Malaysia)

Abstract

This paper compares the effectiveness of monetary policy between civil-law and common-law countries by using the impulse response of monetary policy on the level of investment and consumption. This comparison is made to determine whether countries of common-law origin are less sensitive to monetary policy actions compared with civil-law countries. Theoretically, we expected monetary policy is to be more effective in civil-law countries, in which financial structures are generally more bank-based as compared to common-law countries, in which financial structures are more market-based. The impulse response functions were generated through the estimation of first-differences VAR. The findings show that the impact of monetary policy on investment and consumption is relatively stronger, responds more quickly and is long lasting in civil-law countries compared with common-law countries.

Suggested Citation

  • Zukarnain Zakaria, 2008. "Does Financial Structure Matter in Determining the Effectiveness of Monetary Policy? A Comparison Between Civil-Law and Common-Law Countries," Asian Academy of Management Journal of Accounting and Finance (AAMJAF), Penerbit Universiti Sains Malaysia, vol. 4(1), pages 87-118.
  • Handle: RePEc:usm:journl:aamjaf00401_87-118
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