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Monetary Transmission Mechanism in the East African Community; An Empirical Investigation

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  • Hamid R Davoodi
  • S. V. S. Dixit
  • Gabor Pinter

Abstract

Do changes in monetary policy affect inflation and output in the East African Community (EAC)? We find that (i) Monetary Transmission Mechanism (MTM) tends to be generally weak when using standard statistical inferences, but somewhat strong when using non-standard inference methods; (ii) when MTM is present, the precise transmission channels and their importance differ across countries; and (iii) reserve money and the policy rate, two frequently used instruments of monetary policy, sometimes move in directions that exert offsetting expansionary and contractionary effects on inflation—posing challenges to harmonization of monetary policies across the EAC and transition to a future East African Monetary Union. The paper offers some suggestions for strengthening the MTM in the EAC.

Suggested Citation

  • Hamid R Davoodi & S. V. S. Dixit & Gabor Pinter, 2013. "Monetary Transmission Mechanism in the East African Community; An Empirical Investigation," IMF Working Papers 13/39, International Monetary Fund.
  • Handle: RePEc:imf:imfwpa:13/39
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    References listed on IDEAS

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    Citations

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    Cited by:

    1. Ales Bulir & Jan Vlcek, 2015. "Monetary Transmission; Are Emerging Market and Low Income Countries Different?," IMF Working Papers 15/239, International Monetary Fund.
    2. International Monetary Fund, 2015. "Uganda; Staff Report for the 2015 Article IV Consultation and Fourth Review Under the Policy Support Instrument," IMF Staff Country Reports 15/175, International Monetary Fund.
    3. Robert Blotevogel, 2013. "Measuring and Mending Monetary Policy Effectiveness Under Capital Account Restrictions; Lessons from Mauritania," IMF Working Papers 13/77, International Monetary Fund.
    4. Nyorekwa, Enock Twinoburyo & Odhiambo, Nicholas Mbaya, 2016. "Can monetary policy drive economic growth? Empirical evidence from Tanzania," Working Papers 21122, University of South Africa, Department of Economics.
    5. Charles Abuka & Ronnie K Alinda & Camelia Minoiu & José-Luis Peydró & Andrea Presbitero, 2015. "Monetary Policy in a Developing Country; Loan Applications and Real Effects," IMF Working Papers 15/270, International Monetary Fund.
    6. Nyorekwa, Enock Twinoburyo & Odhiambo, Nicholas Mbaya, 2016. "Monetary policy and economic growth in Kenya:The role of money supply and interest rates," Working Papers 20712, University of South Africa, Department of Economics.
    7. Benedicte Vibe Christensen, 2014. "Financial integration in Africa: implications for monetary policy and financial stability," BIS Papers chapters,in: Bank for International Settlements (ed.), The role of central banks in macroeconomic and financial stability, volume 76, pages 11-28 Bank for International Settlements.
    8. repec:ags:afjecr:264570 is not listed on IDEAS
    9. Asongu, Simplice & Nwachukwu, Jacinta & Tchamyou, Vanessa, 2017. "A summary of a survey on proposed African monetary unions," MPRA Paper 79637, University Library of Munich, Germany.
    10. International Monetary Fund, 2015. "Angola; Selected Issues," IMF Staff Country Reports 15/302, International Monetary Fund.
    11. McKenzie, Rex A, 2015. "Monetary transmission in Africa: a review of official sources," Economics Discussion Papers 2015-7, School of Economics, Kingston University London.
    12. Keyra Primus, 2016. "The Effectiveness of Monetary Policy in Small Open Economies; An Empirical Investigation," IMF Working Papers 16/189, International Monetary Fund.
    13. BIKAI, J. Landry & KENKOUO, Guy Albert, 2015. "Analysis and evaluation of the Monetary Policy Transmission Channels in the CEMAC: A SVAR and SPVAR Approaches," MPRA Paper 78227, University Library of Munich, Germany.
    14. Simon, Carl Nally Regi, 2017. "Les canaux de transmission de la politique monetaire en Haiti: une approche narrative (1996-2016)
      [Monetary transmission channels in Haiti: a narrative approach (1996-2016)]
      ," MPRA Paper 78294, University Library of Munich, Germany.
    15. Simplice Asongu & Jacinta Nwachukwu & Vanessa Tchamyou, 2017. "A Literature Survey On Proposed African Monetary Unions," Journal of Economic Surveys, Wiley Blackwell, vol. 31(3), pages 878-902, July.
    16. 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.
    17. repec:spd:journl:v:67:y:2017:i:3:p:49-78 is not listed on IDEAS
    18. Mishra, Prachi & Montiel, Peter, 2013. "How effective is monetary transmission in low-income countries? A survey of the empirical evidence," Economic Systems, Elsevier, vol. 37(2), pages 187-216.
    19. Andrew Berg & Luisa Charry & Rafael A Portillo & Jan Vlcek, 2013. "The Monetary Transmission Mechanism in the Tropics; A Narrative Approach," IMF Working Papers 13/197, International Monetary Fund.
    20. Mariam El Hamiani Khatat, 2016. "Monetary Policy in the Presence of Islamic Banking," IMF Working Papers 16/72, International Monetary Fund.
    21. repec:sae:soueco:v:18:y:2017:i:1:p:21-38 is not listed on IDEAS
    22. Chileshe, Patrick Mumbi, 2017. "Banking structure and the bank lending channel of monetary policy transmission: evidence from panel data methods," MPRA Paper 82757, University Library of Munich, Germany.

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