Monetary Policy Transmission in Mauritius Using a VAR Analysis
February 1, 2010
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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.
Subject: Consumer price indexes, Inflation, Monetary base, Nominal effective exchange rate, Repo rates
Keywords: core CPI, math, WP
Pages:
33
Volume:
2010
DOI:
Issue:
036
Series:
Working Paper No. 2010/036
Stock No:
WPIEA2010036
ISBN:
9781451962789
ISSN:
1018-5941
