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

Author/Editor:

Issouf Samaké

Publication Date:

August 1, 2010

Electronic Access:

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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:

Frequency:

Monthly

English

Publication Date:

August 1, 2010

ISBN/ISSN:

9781455202256/1018-5941

Stock No:

WPIEA2010191

Price:

$18.00 (Academic Rate:$18.00)

Format:

Paper

Pages:

26

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