A Macro Model of the Credit Channel in a Currency Union Member: The Case of Benin

 
Author/Editor: Samaké, Issouf
 
Publication Date: August 01, 2010
 
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Disclaimer: This Working Paper should not be reported as representing the views of the IMF. The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate
 
Summary: This paper applies and extends a theoretical model built by Agénor and Montiel (2007) by exploring the effectiveness of government bonds and monetary policy in a small, open, credit-based economy with a fixed exchange rate. The model is applied to Benin, a member of a currency union, using a general equilibrium model with stochastic simulation. Model calibration replicates the historical pattern for 1996–2009. Policy experiments simulated an increase in government securities in Benin’s regional market and a cut in the reserve requirement. Simulations produced mixed results. It appears that, among other factors, excess bank liquidity lowers the effectiveness of monetary policy instruments through the credit channel and that government bonds can help mop up excess bank liquidity.
 
Series: Working Paper No. 10/191
Subject(s): Benin | Bonds | Central bank policy | Credit | Economic models | Excess liquidity | Financial sector | Monetary policy | Monetary transmission mechanism | Monetary unions | Reserves | Sovereign debt | West African Economic and Monetary Union

Author's Keyword(s): Benin | Credit channel | excess liquidity | government bonds | general equilibrium | stochastic simulation.
 
English
Publication Date: August 01, 2010
Format: Paper
Stock No: WPIEA2010191 Pages: 26
Price:
US$18.00 (Academic Rate:
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