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Monetary Policy Transmission in Mauritius Using a VAR Analysis

Author/Editor: Tsangarides, Charalambos G.
Authorized for Distribution: February 1, 2010
Electronic Access: Free Full Text (PDF file size is 11,844KB)
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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: 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.
 
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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
 
English  
    Published:   February 1, 2010        
            Format:   Paper
    Stock No:   WPIEA2010036   Pages:   33
    Price:   US$18.00 (Academic Rate: US$18.00 )
       
     
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