IDEAS home Printed from https://ideas.repec.org/a/fau/fauart/v65y2015i5p377-390.html
   My bibliography  Save this article

A Cross-Country Analysis of Monetary Policy Effects on Prices

Author

Listed:
  • Bruno Coric

    (Faculty of Economics, University of Split)

  • Lena Malesevic Perovic

    (Faculty of Economics, University of Split)

  • Vladimir Simic

    (Faculty of Economics, University of Split)

Abstract

What determines the size of monetary policy effects on prices? This is one of the crucial questions for the efficient conduct of monetary policy. Therefore, this study investigates this issue by exploring variations in the responsiveness of prices to a monetary policy shock across 46 developed and developing countries. We first use a structural vector autoregression model to estimate monetary policy effects for each country separately. The estimated effects are thereafter treated as the dependent variable in a cross-country regression. The results suggest that the size of the short-run effect of a monetary policy shock on prices is significantly larger in countries with higher trade openness, a more flexible exchange rate, and a larger and more developed banking sector, while the effect is smaller in countries with the English legal origin.

Suggested Citation

  • Bruno Coric & Lena Malesevic Perovic & Vladimir Simic, 2015. "A Cross-Country Analysis of Monetary Policy Effects on Prices," Czech Journal of Economics and Finance (Finance a uver), Charles University Prague, Faculty of Social Sciences, vol. 65(5), pages 377-390, October.
    • Handle: RePEc:fau:fauart:v:65:y:2015:i:5:p:377-390
    as

    Download full text from publisher

    File URL: http://journal.fsv.cuni.cz/storage/1339_coric.pdf
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Ilian Mihov, 2001. "Monetary policy implementation and transmission in the European Monetary Union," Economic Policy, CEPR, CESifo, Sciences Po;CES;MSH, vol. 16(33), pages 370-406.
    2. Djankov, Simeon & McLiesh, Caralee & Shleifer, Andrei, 2007. "Private credit in 129 countries," Journal of Financial Economics, Elsevier, vol. 84(2), pages 299-329, May.
    3. Kenneth S. Rogoff, 2003. "Globalization and global disinflation," Proceedings - Economic Policy Symposium - Jackson Hole, Federal Reserve Bank of Kansas City, pages 77-112.
    4. Chinn, Menzie D. & Ito, Hiro, 2006. "What matters for financial development? Capital controls, institutions, and interactions," Journal of Development Economics, Elsevier, vol. 81(1), pages 163-192, October.
    5. Ethan Ilzetzki & Carmen M Reinhart & Kenneth S Rogoff, 2019. "Exchange Arrangements Entering the Twenty-First Century: Which Anchor will Hold?," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 134(2), pages 599-646.
    6. Aysun, Uluc & Brady, Ryan & Honig, Adam, 2013. "Financial frictions and the strength of monetary transmission," Journal of International Money and Finance, Elsevier, vol. 32(C), pages 1097-1119.
    7. Stephen G. Cecchetti, 2001. "Legal Structure, Financial Structure and the Monetary Policy Transmission Mechanism," Palgrave Macmillan Books, in: Deutsche Bundesbank (ed.), The Monetary Transmission Process, chapter 5, pages 170-207, Palgrave Macmillan.
    8. Lewis, Jeffrey B. & Linzer, Drew A., 2005. "Estimating Regression Models in Which the Dependent Variable Is Based on Estimates," Political Analysis, Cambridge University Press, vol. 13(4), pages 345-364.
    9. Simone Auer, 2023. "Financial globalization and monetary transmission," Review of International Economics, Wiley Blackwell, vol. 31(2), pages 721-760, May.
    10. Már Gudmundsson, 2008. "Financial globalisation: key trends and implications for the transmission mechanism of monetary policy," BIS Papers chapters, in: Bank for International Settlements (ed.), Financial market developments and their implications for monetary policy, volume 39, pages 7-29, Bank for International Settlements.
    11. Marek Rusnak & Tomas Havranek & Roman Horvath, 2013. "How to Solve the Price Puzzle? A Meta‐Analysis," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 45(1), pages 37-70, February.
    12. Tomas Havranek & Marek Rusnak, 2013. "Transmission Lags of Monetary Policy: A Meta-Analysis," International Journal of Central Banking, International Journal of Central Banking, vol. 9(4), pages 39-76, December.
    13. Frederic S. Mishkin, 1995. "Symposium on the Monetary Transmission Mechanism," Journal of Economic Perspectives, American Economic Association, vol. 9(4), pages 3-10, Fall.
    14. Cwik, Tobias & Müller, Gernot J. & Wolters, Maik H., 2011. "Does trade integration alter monetary policy transmission?," Journal of Economic Dynamics and Control, Elsevier, vol. 35(4), pages 545-564, April.
    15. Gerald Carlino & Robert Defina, 1998. "The Differential Regional Effects Of Monetary Policy," The Review of Economics and Statistics, MIT Press, vol. 80(4), pages 572-587, November.
    16. Frederic S. Mishkin, 2009. "Globalization, Macroeconomic Performance, and Monetary Policy," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 41(s1), pages 187-196, February.
    17. Allan H. Meltzer, 1995. "Monetary, Credit and (Other) Transmission Processes: A Monetarist Perspective," Journal of Economic Perspectives, American Economic Association, vol. 9(4), pages 49-72, Fall.
    18. John B. Taylor & Volker Wieland, 2012. "Surprising Comparative Properties of Monetary Models: Results from a New Model Database," The Review of Economics and Statistics, MIT Press, vol. 94(3), pages 800-816, August.
    19. Kim, Soyoung & Roubini, Nouriel, 2000. "Exchange rate anomalies in the industrial countries: A solution with a structural VAR approach," Journal of Monetary Economics, Elsevier, vol. 45(3), pages 561-586, June.
    20. Michael Owyang & Howard Wall, 2009. "Regional VARs and the channels of monetary policy," Applied Economics Letters, Taylor & Francis Journals, vol. 16(12), pages 1191-1194.
    21. Claudio E. V. Borio & Andrew Filardo, 2007. "Globalisation and inflation: New cross-country evidence on the global determinants of domestic inflation," BIS Working Papers 227, Bank for International Settlements.
    22. Thorsten Beck & Asli Demirgüç-Kunt & Ross Levine, 2010. "Financial Institutions and Markets across Countries and over Time: The Updated Financial Development and Structure Database," The World Bank Economic Review, World Bank, vol. 24(1), pages 77-92, January.
    23. Elbourne, Adam & de Haan, Jakob, 2006. "Financial structure and monetary policy transmission in transition countries," Journal of Comparative Economics, Elsevier, vol. 34(1), pages 1-23, March.
    24. Steven B. Kamin, 2010. "Financial globalization and monetary policy," International Finance Discussion Papers 1002, Board of Governors of the Federal Reserve System (U.S.).
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Famoroti Jonathan Olusegun & Adeleke Omolade, 2022. "Impact of monetary policy transmission mechanism in West African countries," Studia Universitatis „Vasile Goldis” Arad – Economics Series, Sciendo, vol. 32(1), pages 20-42, March.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Bruno Ćorić & Lena Malešević Perović & Vladimir Šimić, 2016. "Openness and the Strength of Monetary Transmission: International Evidence," Acta Oeconomica, Akadémiai Kiadó, Hungary, vol. 66(4), pages 639-659, December.
    2. Lan Nguyen, Thi Mai & Papyrakis, Elissaios & van Bergeijk, Peter A.G., 2021. "Publication bias in the price effects of monetary policy: A meta-regression analysis for emerging and developing economies," International Review of Economics & Finance, Elsevier, vol. 71(C), pages 567-583.
    3. Georgios Georgiadis & Arnaud Mehl, 2015. "Trilemma, not dilemma: financial globalisation and Monetary policy effectiveness," Globalization Institute Working Papers 222, Federal Reserve Bank of Dallas.
    4. Thi Mai Lan Nguyen, 2020. "Output Effects of Monetary Policy in Emerging and Developing Countries: Evidence from a Meta-Analysis," Emerging Markets Finance and Trade, Taylor & Francis Journals, vol. 56(1), pages 68-85, January.
    5. Georgiadis, Georgios & Mehl, Arnaud, 2016. "Financial globalisation and monetary policy effectiveness," Journal of International Economics, Elsevier, vol. 103(C), pages 200-212.
    6. Marek Jarocinski, 2010. "Responses to monetary policy shocks in the east and the west of Europe: a comparison," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 25(5), pages 833-868.
    7. Masagus M. Ridhwan & Henri L.F. de Groot & Peter Nijkamp, 2010. "The Impact of Monetary Policy on Economic Activity - Evidence from a Meta-Analysis," Tinbergen Institute Discussion Papers 10-043/3, Tinbergen Institute.
    8. Tomas Havranek & Marek Rusnak, 2013. "Transmission Lags of Monetary Policy: A Meta-Analysis," International Journal of Central Banking, International Journal of Central Banking, vol. 9(4), pages 39-76, December.
    9. Ekpeno L. Effiong & Godwin E. Esu & Chuku Chuku, 2020. "Financial development and monetary policy effectiveness in Africa," Journal of Social and Economic Development, Springer;Institute for Social and Economic Change, vol. 22(1), pages 160-181, June.
    10. Choi, Sangyup & Willems, Tim & Yoo, Seung Yong, 2024. "Revisiting the monetary transmission mechanism through an industry-level differential approach," Journal of Monetary Economics, Elsevier, vol. 145(C).
    11. Aysun, Uluc & Brady, Ryan & Honig, Adam, 2013. "Financial frictions and the strength of monetary transmission," Journal of International Money and Finance, Elsevier, vol. 32(C), pages 1097-1119.
    12. Georgiadis, Georgios, 2016. "Determinants of global spillovers from US monetary policy," Journal of International Money and Finance, Elsevier, vol. 67(C), pages 41-61.
    13. Jakub Matějů, 2019. "What Drives the Strength of Monetary Policy Transmission?," International Journal of Central Banking, International Journal of Central Banking, vol. 15(3), pages 59-87, September.
    14. Ma, Yong & Lin, Xingkai, 2016. "Financial development and the effectiveness of monetary policy," Journal of Banking & Finance, Elsevier, vol. 68(C), pages 1-11.
    15. Fayyaz Hussain & Mehak Ejaz, 2022. "Effectiveness of the Exchange Rate Channel in Monetary Policy Transmission in Pakistan (Article)," The Pakistan Development Review, Pakistan Institute of Development Economics, vol. 61(1), pages 45-67.
    16. Oxana Babecka Kucharcukova & Michal Franta & Dana Hajkova & Petr Kral & Ivana Kubicova & Anca Podpiera & Branislav Saxa, 2013. "What We Know About Monetary Policy Transmission in the Czech Republic: Collection of Empirical Results," Research and Policy Notes 2013/01, Czech National Bank.
    17. Bhattacharya, Rudrani & Tripathi, Shruti & Chowdhury, Sahana Roy, 2019. "Financial structure, institutional quality and monetary policy transmission: A Meta-Analysis," Working Papers 19/274, National Institute of Public Finance and Policy.
    18. Auer, Raphael A. & Mehrotra, Aaron, 2014. "Trade linkages and the globalisation of inflation in Asia and the Pacific," Journal of International Money and Finance, Elsevier, vol. 49(PA), pages 129-151.
    19. Marek Rusnak & Tomas Havranek & Roman Horvath, 2013. "How to Solve the Price Puzzle? A Meta-Analysis," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 45(1), pages 37-70, February.
    20. Milani, Fabio & Park, Sung Ho, 2015. "The effects of globalization on macroeconomic dynamics in a trade-dependent economy: The case of Korea," Economic Modelling, Elsevier, vol. 48(C), pages 292-305.

    More about this item

    Keywords

    monetary policy effects; trade openness; financial openness; exchange rate regime;
    All these keywords.

    JEL classification:

    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:fau:fauart:v:65:y:2015:i:5:p:377-390. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Natalie Svarcova (email available below). General contact details of provider: https://edirc.repec.org/data/icunicz.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.