The low sensibility of monetary transmission mechanism in low-income countries

Анотація

The paper deals with the low sensibility of the main channels of the monetary transmission mechanism in in low-income countries. In the article, the hypothesis of low-responsiveness and disconnection properties between the variables of monetary transmission mechanism has been tested. For that purpose, into the sample, 6 low-middle income countries were included among which were Algeria, Bangladesh, China, Nigeria, Poland and Ukraine. Thus, with help of building a structural theoretical model, which is appropriate for low-income countries accordingly to their economic structure and institutions imperfectness, evidences were obtained that supported our assumptions. As instrument of approving our hypothesis, the SVAR modelling approach was used with authors' restrictions on parameters of the monetary transmission model. The obtained results have suggested that the monetary impulse was poor to stabilize consumer prices fluctuations, foreign exchange rate, at the same time influencing the increasing output gap, crediting slump and decrease in money supply. Also, the discretionary monetary policy approach was recognized as the main factor, in which make the pursuing of effective monetary policy as a very challenging issue for central banks in low-income countries. Estimations have approved the low level of credit channel responsiveness on interest rate impulse transmission and disconnection between prices level and real exchange rate fluctuations, which in line with theory of the law of the one price violations. Therefore, for to increasing efficiency of interest rate transmission, the rule-based approach of the determining key rate was suggested. Also, it was outlined that the problem of poor responsiveness of monetary policy transmission was merely regarded to the incomplete structure of financial markets, monopolistic competition in banking system and heavily controlled foreign exchange markets by central banks. The proposed recursive empirical model can be applied to modelling monetary policy response function for transition economy with the imperfect financial market. The next perspectives of conducting research will be the including, into transmission channels, such the variables as the shock of monetary policies conducted by foreign central banks and the shock of financial capital spillovers.

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