...January 2012 The Monetary Transmission Mechanism in Nigeria: A Sectoral Output Analysis Philip Ifeakachukwu, NWOSA (Correspondence author) Department of Economics, Accounting and Finance Bells University of Technology, Ota, Ogun State, Nigeria Tel: 234-082-470-7555 E-mail: nwosaphilip@yahoo.com Muibi Olufemi, SAIBU Dept of Economics, Obafemi Awolowo University Ile-Ife, Osun State, Nigeria Tel: 234-085-338-1914 Received: May 31, 2011 doi:10.5539/ijef.v4n1p204 Abstract E-mail: omosaibu@yahoo.com Published: January 1, 2012 Accepted: July 5, 2011 URL: http://dx.doi.org/10.5539/ijef.v4n1p204 The study investigated the transmission channels of monetary policy impulses on sectoral output growth in Nigeria for the period 1986 to 2009. Secondary quarterly data were used for the study while granger causality and Vector Auto-regressive Method of analysis were utilized. The results showed that interest rate channel was most effective in transmitting monetary policy to Agriculture and Manufacturing sectors while exchange rate channel was most effective for transmitting monetary policy to Building/Construction, Mining, Service and Wholesale/Retail sectors. The study concluded that interest rate and exchange rate policies were the most effective monetary policy measures in stimulating sectoral output growth in Nigeria. Keywords: Sectoral output, Monetary transmission channels, Granger causality, VAR model 1. Introduction The channels through which monetary policy impulse is...
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...------------------------------------------------- Slide #1—Monetary Policy: An Introduction Most central banks have the long-run primary goal of “price stability”. In order to achieve such goal, monetary policy is implemented whenever needed in order to promote sustainable growth and low inflation in the economy. Monetary policy exerts its influence on real economic activities through various channels over time, with some changes taking place almost immediately and some taking a long period of time to come up to the surface. An in-depth understanding of these various channels through which the monetary policy transmits itself is essential to make the implementation of the policy most effective and efficient. This presentation seeks to give an overview of these five key transmission channels, and their implications on the economic activities of Korea and the United States. ------------------------------------------------- Slide #2—Transmission Mechanism of the Monetary Policy The monetary transmission mechanism, as the diagram here on the slide illustrates, is the process through which changes in monetary policy instruments such as monetary aggregates or short-term policy interest rates affect the rest of the economy and, in particular, output—real production—and inflation. The monetary policy affects output and prices through its influence on key financial variables such as interest rates, asset prices, exchange rates, and credit, and although not a financial variable...
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...PERAN PASAR MODAL SYARIAH DALAM TRANSMISI KEBIJAKAN MONETER INDONESIA (Studi Kasus Jakarta Islamic Index) Sebuah Refleksi Penerapan Ekonomi Islam di Sektor Pasar Modal AHMAD NASHRUDDIN NIM. S.0812.049 SEKOLAH TINGGI EKONOMI ISLAM (STEI) TAZKIA BOGOR 2012 BAB I PENDAHULUAN 1.1. Latar Belakang Pemberitaan mengenai kebijakan moneter bank sentral pada umumnya selalu menarik perhatian masyarakat. Rapat Dewan Gubernur (RDG) Bank Indonesia pada 4 Februari 2011 memutuskan untuk menaikkan BI Rate sebesar 25 basis poin (bps) atau 0,25% menjadi 6,75%, keputusan tersebut diambil sebagai langkah antisipatif untuk mengendalikan ekspektasi inflasi ke depan yang mulai meningkat.1 Kebijakan tersebut berdampak pada kenaikan Indeks Harga Saham Gabungan (IHSG) sebesar 15,34 poin atau 0,44 persen menjadi 3.496,17 basis poin. Sedangkan indeks LQ45 naik 3,636 poin atau 0,59 persen ke posisi 616,200 basis poin pada penutupan hari itu.2 Gambaran di atas menunjukkan besarnya pengaruh kebijakan moneter terhadap berbagai aktivitas ekonomi dan keuangan. Hal demikian tidak mengherankan karena kebijakan moneter memang ditempuh bank sentral untuk mempengaruhi dan mengarahkan berbagai aktivitas ekonomi dan keuangan tersebut kepada tujuan yang ingin dicapai, yang pada umumnya kestabilan harga, dengan mempertimbangkan pertumbuhan ekonomi.3 Pertanyaannya adalah bagaimana proses pengaruh kebijakan moneter ini terjadi. Seperti halnya kebijakan moneter berpengaruh ekspektasi para pelaku ekonomi di pasar...
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...crisis has been rapid and it appears that the global policy response has helped to mitigate the effects of the financial crisis. European Central Bank response to the latest crisis was an example of swift and effective reaction. It combined a mix of standard and non-standard monetary actions. 2. European Central Bank (ECB) – history and mission The ECB is the central bank for Europe's single currency (the euro) and its main task is to maintain the euro's purchasing power and thus price stability in the euro area. The ECB was created in 1998 to serve as the central bank representing the interests of the countries belonging to the European Union. In less than a decade, the ECB, headquarter in Frankfurt, Germany, has emerged as one of the world’s most important financial institutions. The Treaty of Nice (1967) established a three-stage plan to create a single currency and monetary policy for the euro area by creating the European System of Central Banks (ESCB). The ESCB consists of the ECB as well as the national central banks for each of the member nations. The ECB is successor of the European Monetary Institute (EMI). The EMI was established at the start of the second stage of the EU's Economic and Monetary Union to handle the transitional issues of states adopting the euro and prepare for the creation of the ECB and European System of Central Banks. The ECB formally replaced the EMI on 1 June 1998 by virtue of the Treaty on European Union; however it did not exercise its...
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...Namibia’s Monetary Policy Framework © 2008 All rights reserved. No part of this publication may be reproduced, copied or transmitted in any form or by any means, including photocopying, plagiarizing, recording and storing without the written permission of the copyright holder except in accordance with the copyright legislation in force in the Republic of Namibia. The contents of this publication are intended for general information only and are not intended to serve as financial or other advice. While every precaution is taken to ensure the accuracy of information, the Bank of Namibia shall not be liable to any person for inaccurate information or opinions contained in this publication. Published by the Bank of Namibia 71 Robert Mugabe Avenue P.O. Box 2882 WINDHOEK NAMIBIA Tel: +264 61 283 5111 Fax: +264 61 283 5067 http://www.bon.com.na ISBN: 99916-61-50-6 CONTENTS FOREWORD ............................................................................................................................2 I II THE TRANSMISSION MECHANISM OF MONETARY POLICY IN NAMIBIA ...............3 LEGAL AND INSTITUTIONAL FRAMEWORK ..............................................................6 Board of Directors ............................................................................................................6 Monetary policy formulation .............................................................................................6 Institutional framework ......................
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...DOES MONETARY POLICY INFLUENCE ECONOMIC GROWTH IN PAKISTAN? Haji Saif Ullah (Author) Email: hajisaif@live.com Muhammad Ashraf (coordinator) Department of Management Sciences University Of Gujrat, Gujrat ABSTRACT This study examines the impact of monetary policy on economic growth in Pakistan. The study uses time-series data covering the range of 1991 to 2011.The effects of stochastic shocks of each of the endogenous variables are explored using Error Correction Model (ECM). The study shows that Long run relationship exists among the variables. Also, the core finding of this study shows that inflation rate, exchange rate and external reserve are significant monetary policy instruments that drive growth in Pakistan. It is therefore recommended that the establishment of primary and secondary government bond markets that can also increase the efficiency of monetary policy and reduce the government’s need to rely on the central bank for direct financing. Keywords: Policy instruments, Economic Growth, GDP, Money supply, monetary policy INTRODUCTION The aim of this study is to examine the impact of monetary policy on economic growth. Economic growth is an important macroeconomic objective for any country. Monetary policy has direct relation with economic growth. Folawewo and Osinubi (2006) stated monetary policy as the arrangements which are planned to control supply of money in a country. In many countries the basic aims of the monetary policy are to stabilize prices...
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...Abstract The study investigates the effects of Monetary policy on some significant economic variables like exchange rate, gross domestic product and inflation using data from 1960-2010 to analyze the results. We have taken the data in percentage form. A great number of empirical studies on the relationships of monetary policy and inflation are available and most of these have analyzed the effectiveness of monetary policy in controlling inflation in Pakistan. In this paper we have presented the effectiveness of monetary policy it’s framework and data estimation through which we reached to the conclusion that monetary shocks do affect real variables like GDP, inflation and exchange rate. Pakistan has been estimated by a number of researchers and it has been recognized that monetary phenomenon are responsible for the high levels of inflation. Keywords: Monetary Policy, Inflation, Exchange rate, Economic Growth, Gross domestic product and Pakistan. Introduction This paper attempts to examine the long-run effects of Monetary Policy on several economic variables such as inflation, economic growth that is gross domestic product and exchange rate in Pakistan. For this purpose, analysis have been employed for the period 1960-2010. As monetary policy actions affect policy variables with a significant gap and with high degree of unpredictability and insecurity, it is key to predict the probable impact and degree of monetary policy actions on the real variables. Usually, policy makers...
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...RBI & Its Monetary Policies Table of Contents NO. | Particulars | 1. | Introduction of RBI | 2. | Monetary policy | 3. | Monetary policy objectives | 4. | Monetary policy functions | 5. | Operations of Monetary policy * Quantitative credit control * Selective or qualitative methods | 6. | Operating procedures of Monetary policy * Liquidity adjustment facility (LAF) * Market stabilization scheme | 7. | Monetary policy tools | 8. | Recent changes in Monetary policy | 9. | Evaluation of Monetary policy | 10. | Limitations | 11. | Conclusion | 12. | Bibliography | 13. | | 14. | | 15. | | 16. | | INTRODUCTION OF RBI The central bank of the country is the Reserve Bank of India (RBI). It was established in April 1935 with a share capital of Rs. 5 crores on the basis of the recommendations of the Hilton Young Commission Reserve Bank of India was nationalized in the year 1949. The general superintendence and direction of the Bank is entrusted to Central Board of Directors of 20 members, the Governor and four Deputy Governors, one Government official from the Ministry of Finance, ten nominated Directors by the Government to give representation to important elements in the economic life of the country, and four nominated Directors by the Central Government to represent the four local Boards with the headquarters at Mumbai, Kolkata, Chennai and New Delhi. Local Boards consist of five members each Central Government...
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...The transmission mechanism of monetary policy The Monetary Policy Committee Bank of England This report has been prepared by Bank of England staff under the guidance of the Monetary Policy Committee in response to suggestions by the Treasury Committee of the House of Commons and the House of Lords Select Committee on the Monetary Policy Committee of the Bank of England. The Monetary Policy Committee: Eddie George, Governor Mervyn King, Deputy Governor responsible for monetary stability David Clementi, Deputy Governor responsible for financial stability Alan Budd Willem Buiter Charles Goodhart DeAnne Julius Ian Plenderleith John Vickers This report is also available on the Bank’s web site: www.bankofengland.co.uk The transmission mechanism of monetary policy Introduction and summary The Monetary Policy Committee (MPC) sets the short-term interest rate at which the Bank of England deals with the money markets. Decisions about that official interest rate affect economic activity and inflation through several channels, which are known collectively as the ‘transmission mechanism’ of monetary policy. The purpose of this paper is to describe the MPC’s view of the transmission mechanism. The key links in that mechanism are illustrated in the figure below. First, official interest rate decisions affect market interest rates (such as mortgage rates and bank deposit rates), to varying degrees. At the same time, policy actions and announcements affect expectations about the...
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...Name: Suchak Sajni Sanjiv I.D Number: 630650 Lecturer: Z. Ouma Course: ECO1020 - Principles Of Macroeconomics Spring 2015 Discuss the suitability of monetary policy in stabilizing the economy. Monetary policy, to a great extent, is the management of expectations. Monetary policy rests on the relationship between the rates of interest in an economy, that is, the price at which money can be borrowed, and the total supply of money. Monetary policy uses a variety of tools to control one or both of these, to influence outcomes like economic growth, inflation, exchange rates with other currencies and unemployment. Where currency is under a monopoly of issuance, or where there is a regulated system of issuing currency through banks, which are tied to a central bank, the monetary authority has the ability to alter the money supply and thus influence the interest rate (to achieve policy goals). During the past two decades, maintenance of low inflation, price stability has become the principal focus of central banks around the world. At the same time, the view has emerged that monetary policy is better suited than fiscal policy for short-run stabilization purposes. Monetary decisions take into account a wider range of factors, such as: * Short-term interest rates; * Long-term interest rates; * Velocity of money through the economy; * Exchange rates; * Credit quality; * Bonds and equities (corporate ownership and debt); * Government...
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...COMMERCIAL BANKS Commercial banks are important financial intermediaries serving the general public in any society. In most cases, commercial banks hold more assets than any other financial institution, in some cases, even more than Central Banks. Apart from their many functions, commercial banks facilitate growth and development. They lend in many areas or sectors of the economy. Viewed from the real sector, they contribute to investments, employment creation, and by extension the process of economic growth. In Trinidad and Tobago there are 8 commercial banks as follows; • Bank of Baroda (Trinidad and Tobago) Limited • Citibank (Trinidad & Tobago) Limited • FirstCaribbean International Bank (Trinidad & Tobago) Limited • First Citizens Bank Limited • Intercommercial Bank Limited • Republic Bank Limited • Scotiabank Trinidad and Tobago Limited • RBC Royal Bank (Trinidad and Tobago) Limited There are many other institutions such as credit unions, development banks, mutual funds to name a few. However, notwithstanding this commercial banks can be described as the head of the financial system. They are by far the largest mobilizers of savings and providers of loanable funds. They now account for over 50% of the total assets of the financial system and far more than half of the financial savings of the domestic economy. (See Table 1) Assets of the banking System (2001-2008) [pic]With all these resources...
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...FINM7407: Financial Institutions and Markets Seminar 02 Monetary Policy and Interest Rates Learning Objective: 2 Necmi K Avkiran, PhD Associate Professor in Banking and Finance UQ Business School n.avkiran@business.uq.edu.au http://www.users.on.net/~necmi/financesite/profile.htm Overview of the seminar Monetary policy RBA market operations Balance sheet of the RBA Determination of interest rates and factors that affect rates The yield curve Transmission mechanism Inflation and the Fisher Effect LIBOR and a bank’s funding curve BBSW Banks’ exposure to interest rate risk Case study: Crisis in Cyprus FINM7407 Seminar 02 2 Monetary Policy Monetary policy is an important tool used by governments to influence economic activity. Since 1984, it has taken a particularly simple form— the Reserve Bank of Australia (RBA) sets the overnight rate in the interbank market on unsecured loans, a.k.a. the ‘cash rate’. Currently, the cash rate on 15 July was 2.50%, with an inflation rate of 3% (see RBA’s web page to find more up-todate figures!). FINM7407 Seminar 02 3 Monetary Policy – continued Overview of Reserve Bank Objectives (i.e. ultimate targets) An ‘ultimate target’ of monetary policy is a variable the authorities seek to influence because of its welfare impact. Lower inflation has been the principal ultimate target for some time. Inflation target Stability of the Australian currency Maintenance of full employment...
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...been observed in so many countries? Possibly most important in fueling the controversy is the small share of GDP that oil and its close substitutes have comprised in most economies: 1.5% to 3% prior to the 1973 episode. Experienced macroeconomists doubted that even a sizeable shock to such a small part of the economy could have the observed effects. Second, the 1973 episode itself was not a clean experiment because a number of other major factors were emerging at the same time. The world economy was just getting off the post-Bretton Woods fixed exchange rate regime. A number of countries, including the United States, was teetering on the brink of recession at the time of the 1973 shock; in the United States in particular, monetary policy tightened right around the time of the 1973 shock. Separating these effects and deciding the role of oil price shocks in post 1973 movements of GDP, unemployment rates, and other recessionary indicators has been technically difficult; the potential answers to oil’s role have been seen as important components of diverse doctrinal programs, ranging from fundamental paradigm shifts in macroeconomics to more purely political agendas. Many technical results were clouded by the limited...
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...Chap1 Glossary (See related pages) | | | Central bank | The financial institution that manages the government's finances, controls the availability of money and credit in the economy, and serves as the bank to commercial banks. | | | | European Central Bank (ECB) | The central authority, located in Frankfurt, Germany, which oversees monetary policy in the common currency area. | | | | Federal Reserve System | The central bank responsible for monetary policy in the United States. | | | | Financial institutions | Firms, such as banks and insurance companies, that provide access to the financial markets, both to savers who wish to purchase financial instruments directly and to borrowers who want to issue them; also known as financial intermediaries. | | | | Financial instrument | The written legal obligation of one party to transfer something of value (usually money) to another party at some future date, under certain conditions. | | | | Financial market | The part of the financial system that allows people to buy and sell financial instruments quickly and cheaply. | | | | Financial system | The system that allows people to engage in economic transactions. It is composed of five parts: money, financial instruments, financial markets, financial institutions, and central banks. | | | | Information | A collection of facts. The basis for the third core principle of money and...
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...Monetary policy: theory and practice by Peter Dawson Introduction Monetary policy has been at the forefront of government thinking about the workings of the economy for the last 30Monetary policy has been at the forefront of government thinking about 7.he workings of the economy for the last 30years. Together with fiscal policy it is one of the main methods governments employ in the pursuit of their economic objectives of high economic growth, low unemployment and low w-d stable inflation. Traditionally monetary policy has been conducted by central banks on behalf of governments. This means that although the central bank implements monetary policy~ it is the government which makes the final decision about the timing and the magnitude of the change. Recently governments in a number of countries have granted varying degrees of independence to central banks. In the UK, for example, the Bank of England (BoE) was given 'operational' independence in 1997 granting it a degree of discretionary power in the setting of interest rates and other monetary variables. The importance of monetary policy can be found in the increased media interest in monetary policy matters. Barely a day goes by without some mention of monetary policy Newspapers are filled with speculation about the likely moves monetary authorities will take in order to stabilise the economy Remarkably there is now broad agreement amongst economists that monetary policy is the only policy tool capable of reducing...
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