Monetary Policy Transmission in Mauritius Using a VAR Analysis
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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. 2010/036
Subject:
Consumer price indexes Inflation Monetary base Nominal effective exchange rate Repo rates
English
Publication Date:
February 1, 2010
ISBN/ISSN:
9781451962789/1018-5941
Stock No:
WPIEA2010036
Pages:
33
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