Monetary Policy Transmission Mechanisms in Pacific Island Countries

Author/Editor:

Jonathan C Dunn ; Matt Davies ; Yongzheng Yang ; Yiqun Wu ; Shengzu Wang

Publication Date:

April 1, 2011

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:

During the global financial crisis, central banks in Pacific island countries eased monetary policy to stimulate economic activity. Judging by the ensuing movements in commercial bank interest rates and private sector credit, monetary policy transmission appears to be weak. This is confirmed by an empirical examination of interest rate pass-through and credit growth. Weak credit demand and underdeveloped financial markets seem to have limited the effectiveness of monetary policy, but the inflexibility of exchange rates and rising real interest rates have also served to frustrate the central banks’ efforts despite a supporting fiscal policy. While highlighting the importance of developing domestic financial markets in the long run, this experience also points to the need to coordinate macroeconomic policies and to use all macroeconomic tools available in conducting countercyclical policies, including exchange rate flexibility.

Series:

Working Paper No. 11/96

Subject:

English

Publication Date:

April 1, 2011

ISBN/ISSN:

9781455254279/1018-5941

Stock No:

WPIEA2011096

Format:

Paper

Pages:

24

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