An Analysis of the Monetary Transmission Mechanism of M&A, Greenfield FDI, Domestic Investment, and GDP Per Capita Growth: The Structural Vector Correction Model in Indonesia

Purpose: The study aims to evaluate the different implications of mergers and acquisitions (M&A) and Greenfield foreign direct investment in the transmission mechanism effects on the growth of gross domestic product per capita (GDP per capita) in Indonesia. The origin of the study stems from past academic debates that contested whether Greenfield FDI or M&A bear more effect on the economic growth in emerging markets.

Assessing the efficiency of the monetary transmission mechanism channels in Ukraine

The paper is focused on the performance features of the monetary transmission mechanism (MTM) in Ukraine as a small open economy. To assess the efficiency of monetary transmission channels, it is important to disclose their interaction, define criteria and tools for analyzing their impact on key macroeconomic parameters. The study deepens approaches to the analysis of the intensity of using monetary, credit, interest rate and exchange rate channels in Ukraine in 2005–2020 and detects violations in the functioning of the MTM. Using economic and statistical methods and regression models, the influence of the main channels of monetary transmission on real GDP growth rate and inflation in Ukraine was assessed. It was concluded that it is advisable to clarify the conditions for increasing the efficiency of MTM in Ukraine; also, the parameters of forecasting the intensification of its channels in the medium and long term are determined. The paper highlights measures to improve the formation of volume and structure of the monetary base and monetary aggregates, improve credit and investment climate, and increase the efficiency of monetary regulation. Moreover, interest rate and foreign exchange policies of the central bank to transmit impulses from the decisions of monetary authorities to market participants were substantiated.

The Distribution of Households’ Indebtedness and the Transmission of Monetary Policy

We investigate whether the dynamic response of aggregate consumption to monetary policy depends on the distribution of household debt relative to income. Using UK loan-level micro-data, we propose a novel approach to isolate the fraction of households with a limited ability to smooth consumption. By exploiting time and cross-sectional variation, we show that consumption responds more to monetary policy when the share of highly-indebted households is large, but find no state-contingency with respect to the overall level of debt-to-income. Our results highlight the role of household heterogeneity for understanding monetary transmission to aggregate consumption.

Environmental Degradation: Monetary Transmission Mechanism and CO2 Emission

As a result of recent changes in traditional risk perception accompanying industrialization and technology, global economic risks are increasingly based on the climate. While risks are considered using a two-dimensional approach in traditional risk perception, risk structures occur in a chain under globalization. In the concept of sustainability, environmental degradation and economic growth establish the link between environmental degradation and other macroeconomic variables. Monetary transmission channels—including the interest, exchange rate, asset price, credit, and expectation channels—impact the real economy and productivity by enabling capital accumulation, the orientation of small funds, and technological diffusion. In this context, the evaluation of the efficiency of monetary transmission channels and environmental degradation policy recommendations need to be addressed, especially, within the industrial sector. Although the cointegration approach is based on the fact that linear combinations of non-stationary series are stationary, cointegration analyses in which structural breaks are defined as dummy variables should be performed since the linear combination may change at a certain point in the sample. This study aims to reveal the effect of industrial production index and energy consumption on greenhouse gas emissions using a structural break approach with cointegration methods. Policy suggestions within the scope of sustainability are evaluated considering the long-term structural results among the variables.

Flattening of the Phillips Curve with State-Dependent Prices and Wages

We study monetary transmission in a model of state-dependent prices and wages based on ‘control costs’. Stickiness arises because precise choice is costly: decision-makers tolerate errors both in the timing of adjustments, and in the new level at which the price or wage is set. The model is calibrated to microdata on the size and frequency of price and wage changes. In our simulations, money shocks have less persistent real effects than in the Calvo framework; nonetheless, the model exhibits a substantial degree of non-neutrality, driven mainly by wage rigidity. State-dependent nominal stickiness implies a flatter Phillips curve as trend inflation declines, because price and wage adjustments become less frequent, making short-run inflation less reactive to shocks. Our model can explain almost half of the observed decline in the slope of the Phillips curve since 2000.

The Channels of Transmission of Monetary Policy

This chapter explores the monetary transmission mechanism (MTM) in low financial development countries (LFDCs). It successively discusses the interest rate, asset price, bank credit, balance sheet, expectations, and real balance channels. For each channel, conceptual aspects about how it operates, how it transmits monetary policy impulses to the economy’s financial and real spheres, are first presented. Next, the impact of the specificities of LFDCs on the channel’s strength and reliability are examined and the available empirical evidence is surveyed. The chapter concludes with a global assessment of the effectiveness of the monetary transmission mechanism in LFDCs. Evidence points to a transmission mechanism that is effective although not very strong, and possibly also more uncertain than in advanced and emerging market countries.

Liquidity management and monetary transmission: empirical analysis for India

PurposeA change in monetary operating procedures provides a natural experiment which is used to evaluate, first, whether Indian monetary policy transmission is better when durable liquidity is in surplus or when it is in deficit; second whether it is better with interest rates as the policy instrument or quantity of money or a mixture of the two.Design/methodology/approachThis study first shows that the period of analysis can be divided into two separate regimes one of liquidity surplus (2002–2010) and the other of deficit (2011–2019).This study then estimates separate structural vector auto-regressions (SVARs) for the financial and real sector, with relevant exogenous foreign, policy and other variables for each of the periods as well as SVARs for the whole period with alternative operating instruments.FindingsMonetary transmission from the repo rate was better during the period the liquidity adjustment facility (LAF) was in surplus with the central bank in absorption mode denoting excess durable liquidity. Pass through was faster and the repo rate had a greater influence on other variables. The impact of the rate on output gap exceeds that on inflation. The weighted average call money rate was found to outperform others as the operating target. Monetary policy has evolved so that policy rates are more effective in transmission compared to money supply, but best results are when durable liquidity is also in surplus.Originality/valueThe results contribute to ongoing debates on the Indian monetary policy framework and give useful inputs for policy in emerging markets where research is scarce. They suggest keeping the LAF in deficit mode over 2011–19 was not optimal.

Monetary Transmission in the Term Structure of Interest Rates in Spain (1995-2003)

The aim of this paper is to investigate whether the effectiveness of the transmission mechanism of monetary policy in Spain has changed since EMU establishment. The analysis is based on the fulfillment of the Expectations Hypothesis under rational expectations and the methodology is implemented through a cointegrated bivariate VAR model. The results reveal the existence of monetary transmission in the term structure in the period prior to EMU, even though the evidence is stronger up to the one-year rate. From 1999, the results are only consistent with a weak evidence of monetary transmission.