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Evolution of Monetary Policy Transmission Mechanism in Malawi: A TVP-VAR Approach

Author

Listed:
  • Chance Mwabutwa

    () (Department of Economics, University of Pretoria)

  • Manoel Bittencourt

    () (Department of Economics, University of Pretoria)

  • Nicola Viegi

    () (Department of Economics, University of Pretoria)

Abstract

This paper investigates the evolution of monetary transmission mechanism in Malawi between 1981 and 2010 using a time varying parameter vector autoregressive (TVP-VAR) model with stochastic volatility. We evaluate how the responses of real output and general price level to bank rate, exchange rate and credit shocks changed over time since Malawi adopted financial reforms in 1980s. The paper finds that inflation, real output and exchange rate responses to monetary policy shocks changed over the period under review. Importantly, beginning mid-2000, the monetary policy transmission performed consistently with predictions of economic theory and there is no evidence of price puzzle as found in the previous literature on Malawi. However, the statistical significance of the private credit supply remains weak and this calls for more financial reforms targeting the credit market which can contribute to monetary transmission and promote further economic growth in Malawi.

Suggested Citation

  • Chance Mwabutwa & Manoel Bittencourt & Nicola Viegi, 2013. "Evolution of Monetary Policy Transmission Mechanism in Malawi: A TVP-VAR Approach," Working Papers 201327, University of Pretoria, Department of Economics.
  • Handle: RePEc:pre:wpaper:201327
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    References listed on IDEAS

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    Citations

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    Cited by:

    1. Emmanuel Owusu-Sekyere, 2016. "The impact of monetary policy on household consumption in South Africa. Evidence from Vector Autoregressive Techniques," Working Papers 598, Economic Research Southern Africa.
    2. Malik Qasim KHASAWNEH, 2015. "The Impact of Monetary policy on Consumption and Investment in Jordan during (1989-2013)," Journal of Economics Library, KSP Journals, vol. 2(3), pages 155-164, September.

    More about this item

    Keywords

    Monetary Policy Transmission Mechanism; Price Puzzle; Financial Reforms; Bayesian TVP-VAR;

    JEL classification:

    • C49 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods: Special Topics - - - Other
    • D12 - Microeconomics - - Household Behavior - - - Consumer Economics: Empirical Analysis
    • D91 - Microeconomics - - Micro-Based Behavioral Economics - - - Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making
    • E21 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth
    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy

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