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Evolution Of Monetary Policy Transmission Mechanism In Malawi: A Tvp-Var Approach

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  • CHANCE NGAMANYA MWABUTWA

    (University of Pretoria, Republic of South Africa)

  • NICOLA VIEGI

    (University of Pretoria, Republic of South Africa)

  • MANOEL BITTENCOURT

    (University of Pretoria, Republic of South Africa)

Abstract

This paper investigates the evolution of monetary transmission mechanism in Malawi between 1981 and 2010 using a time varying parameter vector autoregressive (TVP-VAR) model with stochastic volatility. We evaluate how the responses of real output and general price level to bank rate, exchange rate and credit shocks have changed over time since Malawi adopted financial reforms in 1980s. It is becoming clear from literature that financial reforms can change the monetary transmission by changing the overall impact of the policy or by altering the transmission channels overtime. Therefore, the impact of monetary policy on price stability and output growth can vary and portray delayed effects overtime. The paper finds that inflation and real output responses to monetary policy shocks changed over the period under the review. Importantly, beginning mid-2000s, the monetary transmission performed consistently with predictions of economic theory partly due to stable macroeconomic conditions and positive structural changes in the economy. However, the statistical significance of the private credit supply remains weak and this calls for more financial reforms targeting the credit market which can contribute to monetary transmission and promote further economic growth in Malawi.

Suggested Citation

  • Chance Ngamanya Mwabutwa & Nicola Viegi & Manoel Bittencourt, 2016. "Evolution Of Monetary Policy Transmission Mechanism In Malawi: A Tvp-Var Approach," Journal of Economic Development, Chung-Ang Unviersity, Department of Economics, vol. 41(1), pages 33-55, March.
    • Handle: RePEc:jed:journl:v:41:y:2016:i:1:p:33-55
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    4. Emmanuel Owusu-Sekyere, 2016. "The impact of monetary policy on household consumption in South Africa. Evidence from Vector Autoregressive Techniques," Working Papers 598, Economic Research Southern Africa.
    5. Gabriel Rodríguez & Carlos Guevara, 2018. "The Role of Loan Supply Shocks in Pacific Alliance Countries: A TVP-VAR-SV Approach," Documentos de Trabajo / Working Papers 2018-467, Departamento de Economía - Pontificia Universidad Católica del Perú.
    6. Malik Qasim KHASAWNEH, 2015. "The Impact of Monetary policy on Consumption and Investment in Jordan during (1989-2013)," Journal of Economics Library, KSP Journals, vol. 2(3), pages 155-164, September.
    7. Zhou, Ying-Zhe & Huang, Jian-Bai & Chen, Jin-Yu, 2019. "Time-varying effect of the financialization of nonferrous metals markets on China's industrial sector," Resources Policy, Elsevier, vol. 64(C).
    8. Felix S. Nyumuah, 2018. "An Empirical Analysis of the Monetary Transmission Mechanism of Developing Economies: Evidence from Ghana," International Journal of Economics and Finance, Canadian Center of Science and Education, vol. 10(4), pages 72-83, April.
    9. Xie He & Xiao-Jing Cai & Shigeyuki Hamori, 2018. "Bank Credit and Housing Prices in China: Evidence from a TVP-VAR Model with Stochastic Volatility," JRFM, MDPI, vol. 11(4), pages 1-16, December.
    10. Johannes PS Sheefeni, 2017. "Monetary Policy Transmission Mechanism in Namibia: A Bayesian VAR Approach," Journal of Economics and Behavioral Studies, AMH International, vol. 9(5), pages 169-184.
    11. Betchani H. M. Tchereni & Ahmad Makawa & Fredrick Banda, 2022. "Effectiveness of the Asset Price Channel as a Monetary Policy Transmission Mechanism in Malawi: Evidence from Time Series Data," International Journal of Economics and Financial Issues, Econjournals, vol. 12(5), pages 160-168, September.
    12. Zhifang He & Fangzhao Zhou, 2018. "Time-varying and asymmetric effects of the oil-specific demand shock on investor sentiment," PLOS ONE, Public Library of Science, vol. 13(8), pages 1-18, August.
    13. Zhu, Xuehong & Liao, Jianhui & Chen, Ying, 2021. "Time-varying effects of oil price shocks and economic policy uncertainty on the nonferrous metals industry: From the perspective of industrial security," Energy Economics, Elsevier, vol. 97(C).
    14. Chen, Jinyu & Zhu, Xuehong & Li, Hailing, 2020. "The pass-through effects of oil price shocks on China's inflation: A time-varying analysis," Energy Economics, Elsevier, vol. 86(C).
    15. Siahaan, Andysah Putera Utama & , Rusiadi & Nasution, Muhammad Dharma Tuah Putra & Aryza, Solly, 2018. "Dependence of Poverty Dependence on Indonesian Economic Fundamentals," INA-Rxiv rntey, Center for Open Science.
    16. Guevara, Carlos & Rodríguez, Gabriel, 2020. "The role of credit supply shocks in pacific alliance countries: A TVP-VAR-SV approach," The North American Journal of Economics and Finance, Elsevier, vol. 52(C).

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    More about this item

    Keywords

    Monetary Policy Transmission Mechanism; Financial Reforms; Bayesian TVP-VAR;
    All these keywords.

    JEL classification:

    • C49 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods: Special Topics - - - Other
    • D12 - Microeconomics - - Household Behavior - - - Consumer Economics: Empirical Analysis
    • D91 - Microeconomics - - Micro-Based Behavioral Economics - - - Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making
    • E21 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth
    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy

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