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Monetary Policy Effects in Output and Prices: Evidence for the Dominican Republic using a Structural VAR approach

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  • Jiménez Polanco, Miguel Alejandro
  • Paredes Encarnación, Evelio
  • Ramírez de León, Francisco

Abstract

In this paper we provide new evidence of the transmission mechanism of monetary policy in Dominican Republic using a Structural Vector Autoregressive methodology where we incorporate carefully a set of constraints on contemporary relationships composed of domestic and external variables. Using the model, we estimate the responses of CPI inflation and GDP growth, as well as money demand and the real exchange rate, to exogenous movements in monetary policy. In quantitative terms, an innovation of monetary policy has an effect on growth from the second month and runs for one year. In the case of inflation, the effects begin to be observed from the fifth month after the monetary shock occurred, with an average duration of two years. These responses are in line with economic theory in qualitative terms, and we do not observe the existence of any of the economic puzzles.

Suggested Citation

  • Jiménez Polanco, Miguel Alejandro & Paredes Encarnación, Evelio & Ramírez de León, Francisco, 2014. "Monetary Policy Effects in Output and Prices: Evidence for the Dominican Republic using a Structural VAR approach," MPRA Paper 75913, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:75913
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    References listed on IDEAS

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    7. Ben S. Bernanke & Ilian Mihov, 1998. "Measuring Monetary Policy," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 113(3), pages 869-902.
    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    Structural VAR; Monetary policy shock; liquidity puzzle; price puzzle; exchange rate puzzle.;
    All these keywords.

    JEL classification:

    • E41 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Demand for Money
    • E50 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - General
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy

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