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Monetary Policy Transmission Mechanism Using Econometric Models

Author

Listed:
  • Ion PARTACHI

    (The Academy of Economic Studies of Moldova)

  • Simion MIJA

    (The Academy of Economic Studies of Moldova)

Abstract

The purpose of this paper is to present the framework for statistical analyzing the monetary transmission mechanism: the process through which monetary policy decisions are transmitted into changes in real GDP, and inflation; and to evaluate the transmission mechanism in the monetary policy actions confronting it with the evidence in the literature that has been more concentrated in the use of the structural approach. Our results allowed the identification of long run relationships that produce new information on how to evaluate the real interest rate and the nominal interest rate links respectively with the output gap and the nominal inflation derived from the IS and interest rule. We specify the model allowing variables that represent the government fiscal effort to enter in the econometric model based on theoretical models. The statistical identification approach allowed the further identification of a long run relationship that might help to uncover how output gap is related with nominal variables and debt to GDP ratio. Particular monetary transmission channels functions through the effects that monetary policy has on short and long term nominal interest rates, asset prices, exchange rates, bank lending and firm balance sheets. Recent research on the transmission mechanism investigates to realize how these channels work, under the context of dynamic, stochastic and general equilibrium models. Aggregate output and inflation, real variables, are impacted by the policy-induced modifications in the short and long-term nominal interest rates.

Suggested Citation

  • Ion PARTACHI & Simion MIJA, 2013. "Monetary Policy Transmission Mechanism Using Econometric Models," Romanian Statistical Review Supplement, Romanian Statistical Review, vol. 61(4), pages 148-157, December.
    • Handle: RePEc:rsr:supplm:v:61:y:2013:i:4:p:148-157
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    References listed on IDEAS

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    1. Maurice Obstfeld & Jay C. Shambaugh & Alan M. Taylor, 2010. "Financial Stability, the Trilemma, and International Reserves," American Economic Journal: Macroeconomics, American Economic Association, vol. 2(2), pages 57-94, April.
    2. Piti Disyatat, 2008. "Monetary policy implementation: Misconceptions and their consequences," BIS Working Papers 269, Bank for International Settlements.
    3. Carl E. Walsh, 2010. "Monetary Theory and Policy, Third Edition," MIT Press Books, The MIT Press, edition 3, volume 1, number 0262013770, April.
    4. Jaromír Beneš & Jaromír Hurník & David Vávra, 2008. "Exchange Rate Management and Inflation Targeting: Modeling the Exchange Rate in Reduced-Form New Keynesian Models," Czech Journal of Economics and Finance (Finance a uver), Charles University Prague, Faculty of Social Sciences, vol. 58(03-04), pages 166-194, May.
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    Cited by:

    1. Ion Partachi & Simion Mija, 2015. "A Semi-Structural General Equilibrium Analysis of Moldova's Monetary Policy Transmission Mechanism," Economic Research Guardian, Mutascu Publishing, vol. 5(1), pages 34-47, June.

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