Monetary Policy Transmission Heterogeneity: Cross-Country Evidence
IMF Working Papers, October 17, 2023
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- Monetary Policy Transmission Heterogeneity: Cross-Country Evidence
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Bibliographic details
- Authors: Pragyan Deb, Julia Estefania-Flores, Melih Firat, Davide Furceri, Siddharth Kothari
- Published: October 17, 2023
- Series: IMF Working Papers
- DOI: https://doi.org/10.5089/9798400257322.001
Overview
- Paper constructs a novel dataset of monetary policy shocks for an unbalanced sample of 33 advanced and emerging market economies during the period 1991Q2-2023Q2.
- Authors: Pragyan Deb, Julia Estefania-Flores, Melih Firat, Davide Furceri, Siddharth Kothari.
- Publication date: October 17, 2023.
- Series: Working Paper No. 2023/204; Issue: 204; Volume: 2023; Pages: 59.
- DOI: https://doi.org/10.5089/9798400257322.001; Stock No: WPIEA2023204; ISBN: 9798400257322; ISSN: 1018-5941.
Key empirical findings
- Tightening monetary policy has an immediate and negative effect on economic activity.
- Effects on inflation and inflation expectations take time to fully materialize.
- There exist significant heterogeneities in transmission across countries and over time.
- Across countries, monetary policy is more effective in:
- countries with flexible exchange rate regime,
- countries with more developed financial systems,
- countries with credible monetary policy frameworks.
- Monetary policy transmission is stronger when:
- uncertainty is low,
- financial conditions are tight,
- monetary policy is coordinated with fiscal policy (the stances move in the same direction).
Heterogeneity drivers (structural characteristics)
- Exchange rate regime: flexible exchange rate regimes exhibit stronger transmission.
- Financial system development: more developed financial systems amplify policy effects.
- Monetary policy credibility: credible frameworks enhance transmission.
State dependence and cyclical conditions
- Uncertainty: lower uncertainty strengthens transmission.
- Financial conditions: tighter financial conditions increase the potency of monetary policy.
- Policy coordination: alignment between monetary and fiscal stances (moving in the same direction) strengthens transmission.
Subjects and keywords
- Subject: Central bank transparency, Central banks, Consumer price indexes, Energy prices, Exchange rate arrangements, Foreign exchange, Inflation, Prices
- Keywords: Central bank transparency, Consumer price indexes, Energy prices, Exchange rate arrangements, Global, heterogeneity, inflation, inflation expectation, monetary policy shock, Monetary policy transmission, monetary policy transmission heterogeneity, statedependence, transmission of monetary policy, Western Europe, Western Hemisphere
IMF Working Paper: "Monetary Policy Transmission Heterogeneity: Cross-Country Evidence", Working Paper No. 2023/204, October 17, 2023.
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- Working Paper