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How Automatic Adjustment Mechanism Works in Practice – A VECM Analysis of Monetary Transmission Mechanism in Bosnia and Herzegovina

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  • Dejan Kovačević

Abstract

This paper takes stock of the literature on the monetary transmission mechanism in currency boards and analyzes the process of monetary transmission in Bosnia and Herzegovina. The transmission of monetary signals through the economy is based on the automatic adjustment mechanism of the currency board. Three channels of monetary transmission are discussed in this paper: the interest rate channel, the narrow credit channel, and the exchange rate channel. The empirical analysis shows how exogenous monetary shocks are transmitted through different channels and how long it takes for the automatic adjustment mechanism to restore equilibrium in the economy.

Suggested Citation

  • Dejan Kovačević, 2024. "How Automatic Adjustment Mechanism Works in Practice – A VECM Analysis of Monetary Transmission Mechanism in Bosnia and Herzegovina," Eastern European Economics, Taylor & Francis Journals, vol. 62(2), pages 219-275, March.
    • Handle: RePEc:mes:eaeuec:v:62:y:2024:i:2:p:219-275
    DOI: 10.1080/00128775.2022.2164511
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