A Cross-Country Analysis of Monetary Policy Effects on Prices
Czech Journal of Economics and Finance, Vol. 65, Issue 5, pp. 377-390, 2015
24 Pages Posted: 15 Aug 2014 Last revised: 7 Oct 2015
Date Written: March 31, 2015
What determines the size of monetary policy effects on prices? This is one of the crucial questions for the efficient conduct of monetary policy; hence this study investigates this issue by exploring variations in the responsiveness of prices to a monetary policy shock across 46 developed and developing countries. We first use a structural vector autoregression model to estimate monetary policy effects for each country separately. The estimated effects are thereafter treated as the dependent variable in a cross-country regression. The results suggest that the size of the short-run effect of a monetary policy shock on prices is significantly larger in countries with higher trade openness, more flexible exchange rate, larger and more developed banking sector, while the effect is smaller in countries with the English legal origin.
Keywords: Monetary policy effects, trade openness, financial openness, exchange rate regime.
JEL Classification: E52, F41
Suggested Citation: Suggested Citation