Openness and the Strength of Monetary Transmission: International Evidence

27 Pages Posted: 2 Feb 2012 Last revised: 13 Aug 2014

See all articles by Bruno Coric

Bruno Coric

University of Split Faculty of Economics

Lena Malešević Perović

University of Split - Faculty of Economics

Vladimir Simic

University of Split

Date Written: May 1, 2014

Abstract

This study explores cross-country variations in the effects of a monetary policy shock on output using the sample of 48 developed and developing countries. The structural vector autoregression model is used to estimate monetary policy effects for each country separately. Based on the estimated impulse responses we construct a measure of the short-run monetary policy effect on output which is used as the dependent variable in a cross-country regression. Previous literature exploring cross-regional and cross-country differences in the effects of monetary policy has mainly concentrated on the impact of financial and industrial structure. This study extends the analysis by investigating the importance of openness for the strength of monetary transmission. The results of our cross-country regression analysis provide novel empirical evidence on the importance of the exchange rate channel and interdependence between national economies for monetary policy transmission. In particular, our results suggest that the effects of monetary policy shock on output are significantly influenced by: exchange rate regime; trade openness; correlation with the US and for European countries with German economy, and development of the banking sector.

Keywords: Monetary policy effects; exchange rate regime; trade openness; international interdependence

JEL Classification: E52, F41

Suggested Citation

Coric, Bruno and Malešević Perović, Lena and Simic, Vladimir, Openness and the Strength of Monetary Transmission: International Evidence (May 1, 2014). Available at SSRN: https://ssrn.com/abstract=1997184 or http://dx.doi.org/10.2139/ssrn.1997184

Bruno Coric (Contact Author)

University of Split Faculty of Economics ( email )

Split, HR-21000
Croatia

Lena Malešević Perović

University of Split - Faculty of Economics ( email )

Matice hrvatske 31
Split, 21000
Croatia

Vladimir Simic

University of Split ( email )

Livanjska ulica 5
Split, 21000
Croatia

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