Monetary Policy Transmission in Mauritius Using a VAR Analysis

Author/Editor: Tsangarides, Charalambos G.
Publication Date: February 01, 2010
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Summary: Applying commonly used vector autoregression (VAR) techniques, this paper investigates the transmission mechanism of monetary policy on output and prices for Mauritius, using data for 1999-2009. The results show that (i) an unexpected monetary policy tightening-an increase in the Bank of Mauritius policy interest rate-leads to a decline in prices and output but the effect on output is weaker; (ii) an unexpected decrease in the money supply or an unexpected increase in the nominal effective exchange rate result in a decrease in prices; and (iii) variations of the policy variables account for small a percentage of the fluctuations in output and prices. Taken together, these results suggest a rather weak monetary policy transmission mechanism. Finally, we find some differences in the transmission mechanism depending on whether core or headline consumer price index is used in the estimations.
Series: Working Paper No. 10/36
Subject(s): Central bank policy | Consumer price indexes | Economic models | Interest rate increases | Mauritius | Monetary policy | Monetary policy instruments | Monetary transmission mechanism | Price adjustments

Author's Keyword(s): Monetary Policy | Monetary Transmission Mechanism | VAR | Mauritius
Publication Date: February 01, 2010
Format: Paper
Stock No: WPIEA2010036 Pages: 33
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