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We specify a vector autoregression (VAR) model for the U.S. for 1980-2008 to investigate the statistical causal relationships between private non-residential fixed investment, the effective Federal funds rate, personal consumption expenditures, nonfinancial corporate profits, and the nonfinancial corporate credit market debt to test the validity of macroeconomic relationships in a macro model. The VAR utilizes the Toda-Yamamote procedure to test for Granger causality. Our preliminary results show that the transmission mechanism does not work as expected; we find that fixed investment depends on the level of demand in the economy and profits but not on the interest rate. This casts doubt on the usual assumptions about how the monetary transmission mechanism is expected to work. The second part of the paper investigates the effects of the change in the monetary regime towards low and stable interest rates, a policy pursued by the U.S. Fed since the beginning of the 1990s. We find that the new monetary policy regime has the following effects: (1) our VAR model does not support the hypothesis that low interest rates lead to higher fixed nonresidential investment; (2) low interest rates led to a search for higher yields through increasing risk, and (3) they led to an increase in the demand for securitized assets, especially mortgage-backed securities, which eventually resulted in a housing bubble. The overall results therefore raise doubts about the effectiveness of low interest rates as a policy regime designed as a component of a counter-cyclical policy. [ABSTRACT FROM AUTHOR]

In this study, factors affecting the firm performance in Turkey are analyzed within the context of monetary transmission mechanism (MTM) providing evidence from the manufacturing sector. Impulse response estimates of Vector Autoregression (VAR) and Bayesian Vector Autoregression (BVAR) models reveal that GDP growth is a promising factor for the manufacturing sector, whereas inflationary shocks do not promote the sector since macroeconomic expectations are affected negatively. On the other hand, empirical exercise stresses that rises in interest rates lead to an increase in the manufacturing sector revenue through wealth effect, they also decrease the availability of bank loans which in turn hinder the growth of the sector. [ABSTRACT FROM AUTHOR]

This paper proposes an empirical analysis of monetary policy shocks effects on the real economic aggregates and prices with the help of vector autoregressive (VAR) in the context of Central and Eastern European countries. Model specification is different for each type of monetary policy strategies applied by central banks in the region with the scope of best capturing a series of CEE states distinctive features. Our main results identify a relatively high degree of heterogeneity between the transmission of an unexpected contractionary monetary policy shock (in terms of speed, amplitude and impact persistence) under different monetary policy strategies, which could create major problems for the proper functioning of a monetary union. [ABSTRACT FROM AUTHOR]

Post-crisis spillovers and heightened capital flows have triggered a search for alternative monetary policy frameworks, especially for small open emerging economies. The Turkish experience since the end of 2010 is an interesting case in this respect. Faced with extreme volatility in cross-border capital flows, rapid credit growth, and a sharp deterioration in the current account deficit, the Central Bank of Turkey (CBT) has modified the conventional inflation targeting regime by adopting financial stability as a supplementary objective and enriching the set of policy instruments. This study explains the underlying motivation behind why the CBT adopted such a flexible policy, provides an overview of the new framework, and summarizes the initial results. The analysis conducted throughout the paper and the recent evidence suggests that the new policy framework has been quite effective in engineering a soft landing of the Turkish economy in the sense that it has successfully shifted the composition of aggregate demand towards a more balanced growth path (rebalancing) without prejudice to the price stability objective. [ABSTRACT FROM AUTHOR]

This paper aims to investigate the interest rate pass-through of monetary policy rate to banking retail rates in Turkey by employing the asymmetric threshold autoregressive (TAR) and momentum threshold autoegressive (MTAR) procedures introduced by Enders and Siklos (2001). Over the period December 2001 to April 2011, the empirical results of asymmetric threshold cointegration analysis suggest that there exist significant and complete pass-through between policy rate and loan rates. Positive and negative departures from the equilibrium converge to long run path almost at the same speed. Pace of convergence is about two to three months for all loan rates. Policy rate has significant short run impact on loan rates. Our analysis revealed that there is no significant relationship between policy rate and bank deposit rates due to sluggish adjustment of deposit rates. Lastly, the speed and behavior of interest rate pass-through between policy rate and loan rates did not change when we encounter the effect of 2008 financial crisis. Having a banking sector dominated financial system in Turkey, the results suggest that banks adjust loan rates faster than deposit rates. This indicates that Central Bank can affect the consumption behavior of people, in other words aggregate demand through loan rates. [ABSTRACT FROM AUTHOR]

Monetary policy represents one of the most important policies of each country's policy mix. Understanding how monetary policy works and affects real economy is essential in understanding how changes in the settings of monetary instruments such as interest rate increase or decrease will affect the real economy and which variables will react. In this paper we analyse the implications of monetary policy shocks in countries of monetary union in Europe. The focus is on the estimation of the response of economic variables such as a gross domestic product, exchange rate and price level. The model used is based on the vector autoregression approach that enables to estimate the extent and the persistence of monetary policy shocks for tested variables in case of selected European economies. [ABSTRACT FROM AUTHOR]

Monetary transmission mechanism which is questioning the relationship between macro economic variables and monetary variables has been discussed from past to present. It is generally accepted that contractionary monetary shocks affect total consumption, employment and total output negatively. However, the leading position of countries' properties (socio-economic, political etc.) on the relationship between real variables and monetary variables, create a debate among economists and ratify to make them precise evidence. The main aim of this paper is to analyze the effectiveness of narrow credit view on employment and output for Turkey. Within this framework, money supply, total loans, employment rates and industrial production index monthly variables are analyzed for the period of 2005- 2010 by using VAR method. The results indicate that changes in money stock (m2) have an impact on real variables such as employment and output through credit stock. [ABSTRACT FROM AUTHOR]

Copyright of Ensaios FEE is the property of Fundacao de Economia e Estatistica and its content may not be copied or emailed to multiple sites or posted to a listserv without the copyright holder's express written permission. However, users may print, download, or email articles for individual use. This abstract may be abridged. No warranty is given about the accuracy of the copy. Users should refer to the original published version of the material for the full abstract. (Copyright applies to all Abstracts.)

In general, monetary policy changes have a strong impact on financial markets and real economy through various channels, among others the interest rate channel, credit channel, exchange rate channel and asset price channel. This process through which monetary policy decisions impact on an economy in general and the interest rate in particular is known as the monetary policy transmission mechanism. Hence monetary authorities are supposed to know the relationship between monetary aggregates and interest rates in a certain monetary policy regime and the determinants that affect this relationship. The purpose of this paper is to analyze the interest rate channel in Turkey from the perspective of monetary policy transmission channel. The results from our empirical analysis, using quarterly data and applying the VAR model during the period between 2000:1 and 2011:3, it is suggest that traditional transmission mechanism works properly in Turkey. [ABSTRACT FROM AUTHOR]

Copyright of Journal of the Cukurova University Institute of Social Sciences is the property of Cukurova University Institute of Social Sciences and its content may not be copied or emailed to multiple sites or posted to a listserv without the copyright holder's express written permission. However, users may print, download, or email articles for individual use. This abstract may be abridged. No warranty is given about the accuracy of the copy. Users should refer to the original published version of the material for the full abstract. (Copyright applies to all Abstracts.)

The paper analyzes the monetary policy in Slovenia in relation to aggregate demand as banks try to keep and acquire financial resources. The author believes that Bank of Slovenia and the Slovenian government was able to use regulatory powers effectively during the financial crisis which includes regulating mergers and acquisitions. He concludes that bank lending channel exists in Slovenia.

Monetary transmission mechanism which is questioning the relationship between macro economic variables and monetary variables has been discussed from past to present. It is generally accepted that contractionary monetary shocks affect total consumption, employment and total output negatively. However, the leading position of countries' properties (socio-economic, political etc.) on the relationship between real variables and monetary variables, create a debate among economists and ratify to make them precise evidence. The main aim of this paper is to analyze the effectiveness of narrow credit view on employment and output for Turkey. Within this framework, money supply, total loans, employment rates and industrial production index monthly variables are analyzed for the period of 2005-2010 by using VAR method. The results indicate that changes in money stock (m2) have an impact on real variables such as employment and output through credit stock. [ABSTRACT FROM AUTHOR]

Copyright of Economic Trends & Economic Policy is the property of Institute of Economics, Zagreb and its content may not be copied or emailed to multiple sites or posted to a listserv without the copyright holder's express written permission. However, users may print, download, or email articles for individual use. This abstract may be abridged. No warranty is given about the accuracy of the copy. Users should refer to the original published version of the material for the full abstract. (Copyright applies to all Abstracts.)

This paper develops a model of a small open economy integrated in a monetary union, which is a nontrivial technical extension of the existing small open economy model. The model is used to study the monetary transmission mechanism in Portugal. [ABSTRACT FROM AUTHOR]

The effect of a change in monetary policy on output operates through monetary transmission channels. The transmission channels of monetary policy may be gathered in five main titles: interest rates channel, asset prices channel, exchange rate channel, credit channel (bank lending channel, balance sheet channel) and expectation channel. Findings obtained from the analysis of the transmission channels can be used in policy determination. This paper empirically analyzes the bank lending channel, one of the transmission mechanisms of monetary policy in Turkey. In this paper, data between 1996:06- 2006:09 are examined using VAR methodology. According to the findings, the credit channel in Turkey operates partially. [ABSTRACT FROM AUTHOR]

We propose a structural model of the interaction between the aluminium market and the macroeconomy incorporating the rational expectations hypothesis. Based on a competition à la Cournot, our model predicts that aluminium spot price and inventories will respond to macroeconomic shocks to line up supply to the demand level. The model also includes incomplete adjustments to shocks that occur near the delivery date of futures contracts with the implication of a likely high persistence in the aluminium spot price. Estimation results show that the influence of the real exchange rate and the real interest rate on the aluminium price, though statistically significant, is small. We argue that this result is largely expected once we consider the peculiar features of the aluminium market. Further support to this view is provided by the large persistence of the aluminium price response to its own shock and by the negligible contribution of stockholdings innovations to the price forecast error variance. [Copyright &y& Elsevier]

The paper argues that many of the exaggerated claims that globalization has been an important factor in lowering inflation in recent years just do not hold up. Globalization does, however, have the potential to be stabilizing for individual economies and has been a key factor in promoting economic growth. The paper then examines four questions about the impact of globalization on the monetary transmission mechanism and arrives at the following answers: (i) Has globalization led to a decline in the sensitivity of inflation to domestic output gaps and thus to domestic monetary policy? No. (ii) Are foreign output gaps playing a more prominent role in the domestic inflation process, so that domestic monetary policy has more difficulty stabilizing inflation? No. (iii) Can domestic monetary policy still control domestic interest rates and so stabilize both inflation and output? Yes. (iv) Are there other ways, besides possible influences on inflation and interest rates, in which globalization may have affected the transmission mechanism of monetary policy? Yes. [ABSTRACT FROM AUTHOR]

Copyright of Brazilian Review of Finance / Revista Brasileira de Finanças is the property of Sociedade Brasileira de Financas and its content may not be copied or emailed to multiple sites or posted to a listserv without the copyright holder's express written permission. However, users may print, download, or email articles for individual use. This abstract may be abridged. No warranty is given about the accuracy of the copy. Users should refer to the original published version of the material for the full abstract. (Copyright applies to all Abstracts.)

During the past fifteen years, financial markets in Latin America have experienced a major transformation. This process and its effects on the nature of risks and policy challenges in Latin America were the focus of a May 2007 conference in Mexico City sponsored by the Representative Office for the Americas of the Bank for International Settlements and the Americas Center of the Federal Reserve Bank of Atlanta. This article summarizes the papers presented at the conference as well as the discussions among participants from central banks, finance ministries, multilateral institutions, academia, and the private sector. In the first conference session, participants examined the shift from cross-border financing toward domestic financing, which has allowed domestic capital markets to expand and become deeper, more diversified, and less dependent on bank financing. The development of domestic bond markets and the resulting policy challenges were the focus of two conference sessions. Issues discussed included the benefits for sovereigns of issuing in local currency, the pros and cons of doing so in domestic vis-à-vis international markets, the criteria for determining whether to issue domestically or cross-border, the status of private markets, the role of structured finance, and whether developing these markets remains a policy objective for de-dollarizing the region's economies. In the final sessions, participants debated the implications that new financial markets have for monetary policy--such as markets' effect on policy transmission and the authorities' role in developing these markets--and for financial stability. [ABSTRACT FROM AUTHOR]

Monetary policy represents one of the most powerful instruments of economic policy, via which economy is acted upon. The transmission mechanism is precisely the process via which monetary policy decisions move economy as a whole. From the central bank's point of view, the transmission of monetary policy to the economy is of distinguished interest among various topics of macroeconomics. Without being aware of the monetary transmission mechanism it is not possible to conduct good policy. This paper applies the identified VAR methodology to synthetic national data from 2000 till Q2 2007 to study the macro-economic effects of an unexpected change in monetary policy in Romania. [ABSTRACT FROM AUTHOR]

The study attempts to evaluate the impact of short-term real interest rate on growth rate in India in a liberalized financial and trade regime (March 1993 to March 2005). Using ARDL approach to cointegration of Pesaran and Shin (1999), the study finds that interest rate does not have a direct impact; rather, it may have an indirect and adverse impact on growth rate through the transmission channel of bank credit, thereby neither supporting the arguments advocated by Keynesians nor the explanations offered by the proponents of Financial Liberalization School. This incredible result may be attributed to the poor quality of credit disbursal of the banking system in India or low credit offtake for productive investment purposes as investment, an important determinant of economic growth, is governed by several other factors. [ABSTRACT FROM AUTHOR]

With this work, I aim to enrich the knowledge about the monetary policy transmission mechanism in the Czech Republic with empirical evidence on the impact of monetary policy on bank lending. Using a panel of quarterly time series for Czech commercial banks for the period 1996–2001, I study the overall effect of monetary policy changes on the growth rate of loans and the characteristics of the supply of loans. The characterization of the credit market's supply side allows us to make inferences on the operativeness of the credit channel (the bank lending channel and the broad credit channel) of the monetary transmission mechanism. I find that changes in monetary policy alter the growth rate of loans, with considerably stronger magnitude in the period 1999–2001 than in the period 1996–1998. From the analysis intended to capture the characteristics of the supply of loans, I conclude that the lending channel was operative in the period 1996–1998: I find cross-sectional differences in the lending reactions to monetary policy shocks due to the degree of capitalization and to liquidity. For the subsequent period 1999–2001, the results also show distributional effects of monetary policy due to bank size and its bank's proportion of classified loans. In the context of steadily decreasing interest rates, this can bolster the supposition of financial frictions between borrowers and lenders and hence, that of an operative broad credit channel. [ABSTRACT FROM AUTHOR]

Abstract: In this study, we seek to better understand the interest rate pass-through in five Central and Eastern European countries—the Czech Republic, Hungary, Poland, Slovakia and Slovenia, the CEE-5. Our pass-through estimates for several retail rates are generally lower than those reported in the literature, given the absence of cointegration between policy rates and long- or even short-term market rates. In addition, the pass-through has been declining over time in the CEE-5, and we argue that it is likely to decrease further in the future. Finally, the pass-through appears similar in the CEE-5 than in Spain and is higher than in core euro area countries. Hence, euro adoption by the CEE-5 would not further increase heterogeneity within the euro area with regard to the interest rate pass-through. However, substantially more research is needed to establish commonalities and differences between the CEE-5 and the euro area with respect to the reaction of prices and output to monetary policy action. [Copyright &y& Elsevier]

In this paper, we argue that as China's consumer credit sector is expanding, the central bank's role in smoothing economic fluctuation and promoting economic growth becomes more important. We build a general equilibrium model with durable and nondurable goods to analyze how the consumer credit sector affects the transmission mechanism of monetary policy. The model finds that an expanding consumer credit sector improves the efficiency of the monetary transmission mechanism. Two policy implications derived suggest China's central bank should encourage the development of the consumer credit sector and liberalize market-based monetary policy tools such as interest rate tools. [ABSTRACT FROM AUTHOR]

Differences in transmission mechanisms can generate asymmetric behaviour among currency union partners when they experience shocks. This has the potential to widen existing cyclical variation between members of a currency union. Our analysis suggests that the transmission mechanisms of a monetary shock to GDP and the CPI appear to be similar in Australia and New Zealand. However, there are differences in terms of the size of the responses of some variables to identical monetary policy shocks. In a currency union with a different exchange rate pattern and with different monetary policy shocks, New Zealand may experience some new challenges. [ABSTRACT FROM AUTHOR]

This paper analyzes monetary policy asymmetries in EMU participating countries. In particular, we use a structural dynamic modelling approach to investigate asymmetric monetary transmission in Europe. Asymmetries are investigated in two different ways. First, we restrict the estimated structural models reflecting the monetary constraints each country faced during the EMS period. We obtain well-behaved and comparable effects of monetary policy shocks. Second, efficiency frontiers for the selected EMU countries are estimated. In computing the optimal combinations of output gap and inflation volatility we use a weighted average of interest rate and exchange rate, i.e. the Monetary Condition Index (MCI), as a policy instrument. The impulse response analysis implemented with the MCI shows relatively small differences in the responses of the real economy to monetary policy shocks. Altogether the results suggest that, no matter which policy instrument is used, output gap and inflation respond to identical monetary shocks with a similar speed and movement, albeit with a different degree of effect. [ABSTRACT FROM AUTHOR]