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Monetary Policy Transmission Mechanisms in Pacific Island Countries

Author

Listed:
  • Jonathan C Dunn
  • Matt Davies
  • Yongzheng Yang
  • Yiqun Wu
  • Shengzu Wang

Abstract

During the global financial crisis, central banks in Pacific island countries eased monetary policy to stimulate economic activity. Judging by the ensuing movements in commercial bank interest rates and private sector credit, monetary policy transmission appears to be weak. This is confirmed by an empirical examination of interest rate pass-through and credit growth. Weak credit demand and underdeveloped financial markets seem to have limited the effectiveness of monetary policy, but the inflexibility of exchange rates and rising real interest rates have also served to frustrate the central banks’ efforts despite a supporting fiscal policy. While highlighting the importance of developing domestic financial markets in the long run, this experience also points to the need to coordinate macroeconomic policies and to use all macroeconomic tools available in conducting countercyclical policies, including exchange rate flexibility.

Suggested Citation

  • Jonathan C Dunn & Matt Davies & Yongzheng Yang & Yiqun Wu & Shengzu Wang, 2011. "Monetary Policy Transmission Mechanisms in Pacific Island Countries," IMF Working Papers 11/96, International Monetary Fund.
  • Handle: RePEc:imf:imfwpa:11/96
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    References listed on IDEAS

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    1. Norman Loayza & Klaus Schmidt-Hebbel, 2002. "Monetary Policy Functions and Transmission Mechanisms: An Overview," Central Banking, Analysis, and Economic Policies Book Series,in: Norman Loayza & Klaus Schmidt-Hebbel & Norman Loayza (Series Editor) & Klaus Schmidt-Hebbel (Series (ed.), Monetary Policy: Rules and Transmission Mechanisms, edition 1, volume 4, chapter 1, pages 001-020 Central Bank of Chile.
    2. Marco A. Espinosa-Vega & Alessandro Rebucci, 2004. "Retail Bank Interest Rate Pass-through: Is Chile Atypical?," Central Banking, Analysis, and Economic Policies Book Series,in: Luis Antonio Ahumada & J. Rodrigo Fuentes & Norman Loayza (Series Editor) & Klaus Schmidt-Hebbel (Se (ed.), Banking Market Structure and Monetary Policy, edition 1, volume 7, chapter 5, pages 147-182 Central Bank of Chile.
    3. Kumar, Saten & Singh, Rup, 2009. "Some Empirical Evidence on the Demand for Money in the Pacific Island Countries," MPRA Paper 18703, University Library of Munich, Germany.
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    Cited by:

    1. Yongzheng Yang & Hong Chen & Shiu raj Singh & Baljeet Singh, 2013. "The Pacific Speed of Growth; How Fast Can It Be and What Determines It?," IMF Working Papers 13/104, International Monetary Fund.
    2. International Monetary Fund, 2011. "Solomon Islands; Selected Issues," IMF Staff Country Reports 11/360, International Monetary Fund.
    3. Ghazanchyan, Manuk, 2014. "Unraveling the Monetary Policy Transmission Mechanism in Sri Lanka," MPRA Paper 59444, University Library of Munich, Germany.
    4. Sooriyakumar Krishnapillai & Vairavipillai pasupathy Sivanathan & Anushiya Sireeranhan, 2016. "Relative Importance of Monetary Transmission Mechanism in Sri Lanka: An Empirical Investigation," Economics Bulletin, AccessEcon, vol. 36(1), pages 560-568.
    5. Patrizia Tumbarello & Ezequiel Cabezon & Yiqun Wu, 2013. "Are the Asia and Pacific Small States Different from Other Small States?," IMF Working Papers 13/123, International Monetary Fund.

    More about this item

    Keywords

    Interest rates; Pacific Island Countries; monetary policy transmission; pass-through; monetary policy; inflation; central bank; monetary fund; aggregate demand; Money And Interest Rates;

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