Monetary Policy Transmission Heterogeneity: Cross-Country Evidence
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Summary:
This paper revisits the transmission of monetary policy by constructing a novel dataset of monetary policy shocks for an unbalanced sample of 33 advanced and emerging market economies during the period 1991Q2-2023Q2. Our findings reveal that tightening monetary policy swiftly and negatively impacts economic activity, but the effects on inflation and inflation expectations takes time to fully materialize. Notably, there exist significant heterogeneities in the transmission of monetary policy across countries and time, depending on structural characteristics and cyclical conditions. Across countries, monetary policy is more effective in countries with flexible exchange rate regime, more developed financial systems, and credible monetary policy frameworks. In addition, we find that monetary policy transmission is stronger when uncertainty is low, financial conditions are tight and monetary policy is coordinated with fiscal policy—that is, when the stances move in the same direction.
Series:
Working Paper No. 2023/204
Subject:
Central bank transparency Central Banks Consumer price indexes Energy prices Exchange rate arrangements Foreign exchange Inflation Prices
Frequency:
regular
English
Publication Date:
October 17, 2023
ISBN/ISSN:
9798400257322/1018-5941
Stock No:
WPIEA2023204
Format:
Paper
Pages:
59
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