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The Relative Importance of the Channels of Monetary Policy Transmission in a Developing Country: The Case of Zambia

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  • Patrick, Chileshe M.
  • Akanbi, Olusegun Ayodele

Abstract

This study sought to examine relative importance of the different channels of the monetary transmission mechanism in Zambia. Vector Autoregressive Methods are used to examine the strength of each channel of monetary policy, namely interest rate, Exchange rate, credit and asset price channels. Results indicate that the exchange rate and credit are effective channels of monetary policy transmission in Zambia. Further, the study shows that although the interest channel is working it is weak while the equity or asset price channel is not important. From a policy perspective, these results imply that Central Bank is required to continuously monitor developments in the credit and conditions in foreign exchange markets in order to design effective monetary policies. In addition, concerted efforts are needed towards enhancing the asset/equity price channel in Zambia to make monetary policy to be more effective.

Suggested Citation

  • Patrick, Chileshe M. & Akanbi, Olusegun Ayodele, 2017. "The Relative Importance of the Channels of Monetary Policy Transmission in a Developing Country: The Case of Zambia," African Journal of Economic Review, African Journal of Economic Review, vol. 5(2), July.
    • Handle: RePEc:ags:afjecr:264570
    DOI: 10.22004/ag.econ.264570
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