The Monetary Transmission Mechanism in the Tropics: A Narrative Approach
55 Pages Posted: 10 Oct 2013
Date Written: September 2013
Many central banks in low-income countries in Sub-Saharan Africa are modernising their monetary policy frameworks. Standard statistical procedures have had limited success in identifying the channels of monetary transmission in such countries. Here we take a narrative approach, following Romer and Romer (1989), and center on a significant tightening of monetary policy that took place in 2011 in four members of the East African Community: Kenya, Uganda, Tanzania and Rwanda. We find clear evidence of the transmission mechanism in most of the countries, and argue that deviations can be explained by differences in the policy regime in place.
Keywords: Monetary Transmission Mechanisms, Low Income Countries, monetary policy, inflation, central bank, monetary fund, money market, aggregate demand, monetary targeting, monetary policy frameworks, reserve requirements, open market operations, transmission of monetary policy, national bank, monetary policies, money market interest rates, discount rate, money demand, monetary aggregates, monetary targets, monetary policy implementation, long-term interest rates, loose monetary policy, monetary system, monetary policy transmission mechanism, monetary standards, monetary regimes, monetary authority, monetary shocks, monetary policy reaction function, monetary union, monetary conditions, monetary pol
JEL Classification: E42, E44, E58, E52
Suggested Citation: Suggested Citation