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Do the Keynesian monetary transmission mechanisms work in the MENA region?

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  • Sanchita Mukherjee
  • Rina Bhattacharya

Abstract

In this article, we empirically examine the operation of the traditional Keynesian interest rate channel of the monetary policy transmission mechanism in five emerging economies in the Middle East and North Africa (MENA) region and compare it with 14 inflation targeting (IT) emerging market economies (EMEs) using dynamic panel data analysis. Contrary to some existing studies, our empirical results provide no support for the argument that the traditional Keynesian interest rate channel is weak or does not operate effectively in the MENA region: both private consumption and investment in the MENA EMEs are sensitive to movements in real interest rates (although, in the case of private consumption, not independently of the level of financial development). We also find that interest rate elasticities of private consumption and private investment vary significantly with the level of development of the domestic financial market in the MENA EMES comparable to that in IT countries. Finally, our findings suggest that liberalization of the capital account has a significantly positive impact on private sector demand in MENA EMEs similar to that in the IT EMEs. Copyright Springer-Verlag Berlin Heidelberg 2015

Suggested Citation

  • Sanchita Mukherjee & Rina Bhattacharya, 2015. "Do the Keynesian monetary transmission mechanisms work in the MENA region?," Empirical Economics, Springer, vol. 48(3), pages 969-982, May.
    • Handle: RePEc:spr:empeco:v:48:y:2015:i:3:p:969-982
    DOI: 10.1007/s00181-014-0824-8
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    1. Qishui Chi & Shiwen Fu, 2016. "The Impact of the Interest Rate Liberalization on Both Banks and Small Firms: Evidence from China," Research in World Economy, Research in World Economy, Sciedu Press, vol. 7(2), pages 26-33, December.

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    More about this item

    Keywords

    Monetary transmission; Private consumption; Private investment; Interest rate elasticity; Financial market development; Capital openness; E21; E42; E44; E52; F41; F42;
    All these keywords.

    JEL classification:

    • E21 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth
    • E42 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Monetary Sytsems; Standards; Regimes; Government and the Monetary System
    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • 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
    • F42 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - International Policy Coordination and Transmission

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