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THE TRANSMISSION OF MONETARY POLICY IN MOROCCO: FROM POLICY RATE TO COMMERCIAL BANKS’ LENDING RATES

THE TRANSMISSION OF MONETARY POLICY IN MOROCCO: FROM POLICY RATE TO COMMERCIAL BANKS’ LENDING RATES

The main objective of this paper is to explore the impact of monetary policy decisions on the lending rates of commercial banks in Morocco. For this purpose, A Vector Auto regressive (VAR) model is estimated in order to measure the impact of policy rate variations on the commercial lending rates, namely: treasury rate, consumer credit rate, equipment rate and mortgage rate. The main empirical finding is that variations in policy rate impacts the rates of commercial bank and the effect is more important on the short run than on the longer run rates.
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Interest rate liberalization and pass-through of monetary policy rate to bank lending rates in China

Interest rate liberalization and pass-through of monetary policy rate to bank lending rates in China

The degree of interest rate pass-through from the policy rate to the interest rates of commercial banks is very important in measuring the effectiveness of monetary policy transmission and the question has been widely explored in the literature. Many studies in the literature assume the pass-through of policy rates to banks’ retail deposit and loan rates is immediate and complete (Bernanke and Gertler 1995; Gertler and Gilchrist 1994). While this assumption is reasonable for developed countries like the US, it may not be the case for other countries due to various factors, such as an uncompetitive banking industry, untrustworthy central banks, and/or ineffective conduct and commu- nication of monetary policies. Indeed, a growing body of literature in recent years show that the interest rate pass-through may be sluggish, incomplete, and asymmetric (Chong 2010; Kopecky and van Hoose 2012). Kleimeier and Sander (2006) study the pass-through process of expected and unexpected monetary policy impulses and find that the expected monetary policy impulses are passed to retail interest rates more quickly, suggesting that good communication by the central bank can improve the ef- fectiveness of monetary policy transmission. Liu et al. (2008) examine how the trans- parency of monetary policy influences its transmission. They find that transparency improves monetary policy transmission by reducing the volatility of official policy rates. Further, in uncompetitive markets, rates may be fast to go up but slow to come down, i.e., the rocket and feathers phenomenon. The findings have important policy implications as the effectiveness of monetary policy is determined by how fast changes in the policy rate are passed to retail deposit and loan rates. If the transmission is slow, monetary policy takes time to impact the economy. Further, if the pass-through is asymmetric, cuts in policy rates or a loose monetary policy take longer to work than in- creases in policy rates or a tight monetary policy.
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Implication of Monetary Policy Rate and Interest Rate on Exchange Rate in Nigeria: 1981-2017

Implication of Monetary Policy Rate and Interest Rate on Exchange Rate in Nigeria: 1981-2017

Emerenini and Eke [16] investigated the impact of monetary policy rate on inflation in Nigeria using monthly data from January 2007 to August 2014. The ordinary least square (OLS) method was adopted because of its best linear unbiased estimator (BLUE) property. The result showed that expected inflation, exchange rate and money supply influenced inflation, while annual treasury bill rate and monetary policy rate though rightly signed did not influence inflation in Nigeria within the period under investigation. The estimated model displayed that all the explanatory variables used for the analysis accounted for 90% variation in explaining the direction of inflation as regards to increase or decrease. The co-integration test showed that a long term relationship existed among the variables and they were stationary at order one I (1).
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The Long term Rate and Interest Rate Volatility in Monetary Policy Transmission

The Long term Rate and Interest Rate Volatility in Monetary Policy Transmission

instruments. We construct event studies respectively from movements of the spot-month funds future rate and variation in the implied volatility of 10-year rate around each FOMC announcement. From this construct, we generate two policy instruments which are time series of policy rate surprises and time series of volatility surprises. The SVAR impulse responses show that both policy rate surprises and volatility surprises can significantly stim- ulate fluctuations in the long-term real rate and the price level without incurring the price puzzle put forth by Eichenbaum (1992), but only the latter drives swings of financial fric- tions and output. These findings support the financial accelerator models (Bernanke et al., 1999) in which financial intermediations amplify the policy impact on economic activity. Our results also question the cost-of-capital effect in Neoclassical theory of investment since production seems muted to the policy-rate-induced change in the long-term real rate. In terms of monetary transmission channels, we obtain evidence in support of the risk-taking channel but fail to observe the validity of the conventional Keynesian interest rate channel. This paper extends an SVAR model to examine the validity of different mainstream monetary transmission channels within a comparable framework. Furthermore, we generate the first measure of monetary-policy-induced changes in the expected volatility of monetary policy shocks in the long run. This measure has the potential to be an alternative mone- tary policy surprise to indicate the risk-side impact of monetary policy. Lastly, we observe relatively independent monetary policy transmission mechanisms through the two ends of the yield curve. This finding may open a window for refined monetary policy identifications respectively for short- and long-term interest rates.
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Analysis of Exchange Rate and Interest Rate Policy Instruments’ Dynamics on Agricultural Growth in Nigeria

Analysis of Exchange Rate and Interest Rate Policy Instruments’ Dynamics on Agricultural Growth in Nigeria

value of a country’s domestic currency at any given time in relation to countries in which the home country has foreig n or trade links (Nwankwo, 1980). A reduction of the nominal rate is an appreciation; an increase in the nominal rate is a depreciation or devaluation. A shift in exchange rate will have effect on certain economic variables such as interest rate, money supply etc (Okoduwa, 1997). This means that exchange rate is a strong determinant necessary for any economic well-being of Nigeria. In a market-friendly environment, exchange rate must respond to the market forces of demand and supply. The exchange rate, when applied in conjunction with other macroeconomic policies leads to the achievement of the goals of price stability, improved and sustained economic growth, reduced unemployment and balance of payment stability (Caballero and Corbo, 1989). Exchange rate policy targeted at stabilizing the value of naira may affect the prices of goods and services which may have impact on agricultural growth and resource sustainability.This influence, in turn curbs inflation, increase employment and maintains a healthy value of money (Agu et al., 2014). Policy fluctuations are likely, in turn, to determine economic performance and agricultural growth as a sector.Monetary policy under the floating exchange rate: Figure 1 shows the effects of expansionary monetary policy (a lower policy rate) stimulates investment and this effect is reinforced by a currency depreciation that stimulates net exports in an open economy. The policy change also has consequences for the equilibrium on the money market. The lower interest rate raises money demand both because of its direct effect on money demand and because of and the indirect effect via higher income (Floden, 2010).
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EFFECTS OF MONETARY POLICY ON INTEREST RATE SPREAD IN KENYA

EFFECTS OF MONETARY POLICY ON INTEREST RATE SPREAD IN KENYA

Licensed under Creative Common Page 282 Empirical literature review showed that results varied for various studies and in different countries. While Folawewo and Tennant (2008) and Oduori (2012) concluded that Tbill rate had a negative effect on interest rate spread, Nampewo (2013) and Ondari et.al (2016) concluded that Tbill rate had a positive effect on interest rate spread. Similarly, while the results by Kelilume (2014) concluded that the monetary policy rate had a positive impact on deposit rate and prime lending rate, Mohsin (2011) concluded that lending rate was co-integrated while deposit rate was not co-integrated with the central bank discount rate in the long run. In addition, different models of estimation were used by different studies such as panel data regression, pooled generalized least square method, ECM, ARDL model and multiple regression among others.
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What about monetary transmission in Albania? Is the exchange rate pass through (still) the main channel?

What about monetary transmission in Albania? Is the exchange rate pass through (still) the main channel?

The monetary transmission process is stylized shown in Graph 1. At the top there is the main instrument of the monetary authority, the monetary policy rate. In many countries this rate is the repo rate. Monetary policy is eased in case this rate decreases, while on the contrary, monetary policy is tightened in case this rate increases. Monetary authorities with a strategy of inflation targeting will aim at affecting the growth rate of the consumer price index, i.e. inflation. Inflation appears in the lower part of Graph 1. The transmission from movements in the monetary policy rate to movements in inflation flows through different channels. The more effective monetary policy is, the more precise and the more rapidly the monetary authority is able to steer the inflation towards a desired rate by means of the policy rate. The degree of effectiveness depends among others on the speed of the transmission via the channels between the monetary policy rate and inflation.
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Monetary policy rules in practice: Evidence for Sri Lanka

Monetary policy rules in practice: Evidence for Sri Lanka

Figure 7 plots the interest rate gap which is the difference between the effective policy rate and the interest rate implied by the estimated monetary policy rule and the inflation gap which is the difference between the inflation rate and targeted inflation. The figure shows an inverse relationship between the interest rate gap and the inflation gap. Periods during which the actual interest rate was close to the implied rate implied by the estimated Taylor rule, actual inflation is closer to the desired/targeted rate of inflation. In periods where there is a deviation of the effective policy rate from the policy rate implied by the Taylor rule, the larger the gap between actual inflation and the desired/targeted rate of inflation. A widening gap is observed during the period 2007-2008, coinciding with the Global Financial Crisis. A recursive regression was carried out for the backward looking specification in column 3 of Table 2 to assess the evolution of the coefficients on the inflation gap and output gap over time. The results are presented in Figure 7. According to the estimates the response of monetary policy to deviations of inflation from the desired level and the output gap has strengthened since 2007, reaching a peak in 2009. The response of monetary policy to inflation has stabilised thereafter, while the response to the output gap appears to have gradually declined reflecting the improvement in the transmission of monetary policy. The coefficient on the output gap has been consistently higher than the coefficient on the
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Interest rate dynamics and monetary policy implementation in Switzerland

Interest rate dynamics and monetary policy implementation in Switzerland

The SNB manages the 3M Libor through both, words and deeds. First of all, the announced target rate itself should have an influence on the Libor. Moreo- ver, since the current Libor will also depend on the expected path of the target range, the management of market expectations via e.g. interviews and speeches is of particular importance for the SNB, see e.g. Schlegel (2009). The SNB’s communication of current and future target rates is substantiated by a very active liquidity management. The most important policy instrument are daily repo auctions with one-week maturity. The repo volume allotted in these auc- tions determines the level of reserves and, in addition, the pre-announced repo rate governs the one-week repo rate in the interbank money market. As a result, the repo rate can be seen as the SNB’s intermediate policy rate to manage the 3M Libor.
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Exchange Rate Pass through to Prices : Bayesian VAR Evidence for Ghana

Exchange Rate Pass through to Prices : Bayesian VAR Evidence for Ghana

The contribution of this paper will be to employ sign restriction with rejection method in Vector Autoregression (VAR) to estimate exchange rate pass-through in Ghana. To the best of my knowledge this is the first paper to employ a sign restricted VAR with rejection method to estimate exchange rate pass-through for Ghana. Albeit the VAR specification follows Sanusi (2010), this paper diverge on account of estimating the reduced form parameters using Bayesian technique. Results from the impulse response indicates a significant but not a unitary response of domestic prices to structural standard deviation decrease in the exchange rate. The implication is that exchange rate depreciation leads to an upsurge in domestic prices in Ghana however, the impact is incomplete. This confirms Sanusi (2010) ; Acheampong (2004); Adu et al., (2015) ; Frimpong and Adam (2010); Loloh (2014) for Ghana. Furthermore, there is also a significant response of domestic prices to monetary expansion. The narrative is that monetary expansion in the form of a decrease in the policy rate has inflationary tendencies for the Ghanaian economy. This corroborates Sanusi (2010) for Ghana.
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Policy irreversibility and interest rate smoothing

Policy irreversibility and interest rate smoothing

An important extension is to introduce forward-looking expectations in AS and IS equations. While it is well understood within the linear quadratic framework that the virtue of making the current policy rate dependent on the lagged policy rates comes from the current policy rate’s increased influence on inflation expectations, it might not be the case once policy irreversibility is taken into account. As discussed in section 5, “policy inertia” stemming from the irreversibility constraint may make it even more difficult to controll long-term rates. One difficulty of introducing expectations in structural equations is to maintain the accuracy of the solution. Considering nonlinear policies under irreversibility will be hard to justify as long as the forward-looking AS and IS equations are obtained by a linearization technique. Ideally, therefore, the model should be solved by a non-local approximation method.
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Monetary Policy Transmission and Bank Lending In South Korea and Policy Implications

Monetary Policy Transmission and Bank Lending In South Korea and Policy Implications

This paper tests the bank lending channel for South Korea based on a simultaneous-equation model consisting of the demand for and the supply of bank loans. The three-stage least squares method is employed in empirical work. The demand for bank loans is negatively associated with the lending rate and positively affected by real GDP and the corporate bond yield. The supply of bank loans has a positive relationship with the lending rate and real bank deposits and a negative relationship with the central bank policy rate, the KRW/USD exchange rate and the 10-year U.S. government bond yield. Therefore, this study finds evidence of a bank lending channel for South Korea. Expansionary monetary policy through a lower policy rate or open market purchase of government bonds to increase bank deposits/reserves would increase bank loan supply.
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Twin fallacies about exchange rate policy: A note

Twin fallacies about exchange rate policy: A note

Two assertions about exchange rate regimes circulate with some frequency in policy circles. The first, which could be called the hypothesis of the excluded middle, holds that authorities must either choose perfectly floating exchange rates (preferably anchored by an inflation target for the central bank) or a hard (preferably irrevocable) peg. In the former camp tends to be the small number of industrial countries with sufficient credibility to run independent monetary policies. In the latter camp are mostly emerging market economies that have so little credibility in the financial marketplace that adopting another country’s currency seems like a small sacrifice of autonomy.
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Monetary Exchange Rate Policy and Current Account Dynamics

Monetary Exchange Rate Policy and Current Account Dynamics

The debate over the role of exchange rate in the formulation of monetary policy is far from being settled. Numerous issues have been considered in the NOEM literature in this regard. For instance, it depends on the currency in which firms set their prices. If firms set their prices in the seller’s currency, known as producer currency pricing (PCP), then a number of researchers such as Obstfeld and Rogoff (1995a), Gali and Monacelli (2002), Clarida, Gali and Gertler (2001), Engel (2002), Corsetti and Pesenti (2001a, 2001b) and Sutherland (2000, 2002) have shown that the monetary authority should only target domestic prices and let the exchange rate float. On the other hand, if firms are assumed to set their prices in the buyer’s currency, known as local currency pricing (LCP) , then the domestic price level remains completely unaffected by exchange rate movements and therefore to ensure complete risk sharing the monetary authority should keep the exchange rate fixed (Betts and Devereux (2000), Devereux and Engle (2000, 2002)). Other variations in this debate include traded versus non-traded goods (Obstfeld and Rogoff (2000, 2002)), complete versus incomplete exchange rate pass-through (Corsetti and Pesenti (2001b), Sutherland (2002), Smets and Wouters (2002), and domestic versus CPI inflation targeting (Svensson (2000)). It is important to note, however, that most of this literature ignores the dynamics of current account or net foreign assets.
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Fiscal Policy, the Real Exchange Rate, and Commodity Prices

Fiscal Policy, the Real Exchange Rate, and Commodity Prices

These papers commonly assume a two-country world, in which the countries are similar in consumption patterns, production technology, or both. The countries considered in these models may be borrowers or lenders, but in any case face no constraints in international capital mar- kets. The events of the 1980s, however, suggest that an expansion of this two-country setting is needed to consider the international transmission of fiscal disturbances to trading partners with very different characteris- tics, particularly the marked differences between developed and develop- ing countries. Although preferences and even technology may not differ considerably, in recent years developed and developing countries have not had equal access to international capital markets. Consider, for in- stance, the summary statistics in Table 1, which underscore the differ- ences in economic performance among the United States, the other major industrial countries, and the developing nations. This paper attempts to explain this dispersion, giving particular attention to the borrowing con- straints faced by developing countries and other stylized facts, in partic- ular, the observed inverse relationship between real commodity prices (in U.S. dollars) and the U.S. real exchange rate (see Dornbusch (1985)). This paper, like Frenkel and Razin (1984, 1986), presents a nonmon- etary economy without capital, but as in the growth models, a supply
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Exchange rate policy and export performance of WAMZ countries

Exchange rate policy and export performance of WAMZ countries

Exchange rate policy and export performance has been studied in a large number of theoretical and empirical papers globally, focusing on its regime, extent of volatility and nominal/real effects. While there seem to be no ambiguity about its general effects on export performance of developed economies, it is however debatable when analyzed from the perspective of developing countries. Indeed, for developed economies with convertible or traded currencies, the traditional view is that a rise in exchange rate volatility increases the uncertainty of profits on contracts denominated in a foreign currency. This risk leads risk-averse and risk-neutral agents to redirect their activity from higher risk foreign markets to the lower risk home market. Egert, et. al. (2005) notes that this assertion is not universal for developed countries as most studies show that there is no clear and statistically significant link between exchange rate regimes and aggregate or bilateral export flows. Although a number of studies have pointed to the likelihood that exchange rate volatility could depress or have negative effects on exports of developing countries, it is again debatable if such effects would be significant given the fact that most of their currencies are un-traded but pegged to a basket of major traded currencies.
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Towards an [Unlawful] Modernized EU VAT Rate Policy

Towards an [Unlawful] Modernized EU VAT Rate Policy

In late 2015, the European Commission announced a monumental U-turn on VAT rates policy. After decades of advocating the benefits of harmonisation of VAT rates across the EU Member States, and after many failed legislative attempts at achieving it, the Commission has announced its intention to do the opposite, namely to disharmonise VAT rates across Europe. The announcement was followed by the VAT Action Plan, and a public consultation on the reform of VAT rates, which, under the guise of modernisation and consistency with the destination principle, presented two options for reform, both of which would give Member States further freedom and flexibility in the application of reduced rates. Against this background, the aim of this article is not to restate the benefits of VAT rate harmonisation, but to assess whether the EU has legislative competence to approve disharmonising VAT legislation. The article concludes that Article 113 TFEU could not be used as a legal basis for a Directive aimed at disharmonising VAT rates, and that any such Directive, therefore, would lack legal basis and be consequently unlawful under the EU constitutional principle of conferral of powers.
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Non Linear Fiscal Regimes and Interest Rate Policy

Non Linear Fiscal Regimes and Interest Rate Policy

Much empirical evidence fi nds that governments react to fi scal imbalances in a non-linear way, through an increasing marginal response of primary surpluses to changes in debt. This paper shows that non-linear fi scal regimes alter equilibria under active and passive monetary- fi scal policies. The Fisher equation combined with non-linear fi scal policies leads to multiple steady states. Under passive interest rate rules, even if the steady state at which fi scal policy is active is locally saddle-path stable, there exist in fi nite equilibrium paths originating in the neighborhood of that steady state which converge into a high-debt trap. Under active interest rate rules, even if the steady state at which fiscal policy is active is locally unstable, there exists a saddle connection with the high debt equilibrium along which in fl ation is uniquely determined.
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Optimal exchange rate policy in a low interest rate environment

Optimal exchange rate policy in a low interest rate environment

However, as the recent experience of several Asian economies suggests, unless the central bank adopts a …xed exchange rate regime like China, it is not always possible to achieve a nominal depreciation. Orphanides and Wieland (2000) and Coenen and Wieland (2003), who also recommend that in the presence of the zero lower bound, the central bank should rely on the exchange-rate channel, suggest that the central bank can create a depreciation via a portfolio-balance e¤ect. In particular, this can be done by expanding the monetary base on a large scale. This paper, on the other hand, argues that in order to create a depreciation successfully, the central bank also has to rely on the expectations channel. That is, the present paper implies that aggressive monetary-base expansion proposed by Orphanides and Wieland (2000) may be e¤ective, but only if the central bank can make a credible promise to keep injecting liquidity into the economy going forward even when the de‡ationary pressure begins to subside. According to the analysis in this paper, by expanding the monetary base, but on a discretionary basis, and thereby only relying on the portfolio- balance e¤ect, the central bank may not be able to generate a depreciation.
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Negative interest rate policy in a permanent liquidity trap

Negative interest rate policy in a permanent liquidity trap

This paper shows that a reduction in the nominal rate of interest on ex- cess reserves boosts an economy falling into the permanent liquidity trap to the extent that it lowers the nominal deposit rate. It increases house- hold consumption (aggregate demand), reduces unemployment, and raises the price change rate. If the natural nominal interest rate is higher than the lower bound set by the presence of vault cash, it can lower the nominal deposit rate to the level of the natural nominal interest rate. Consequently, the economy gets out of the permanent liquidity trap and reaches a normal steady state. However, if the natural nominal interest rate is lower than the lower bound, the economy cannot escape the permanent liquidity trap no matter how negative the nominal rate of interest on excess reserves be- comes. This is because the nominal deposit rate reaches the lower bound and does not go down to the level of the natural nominal interest rate. In this situation, where lowering the nominal rate of interest on excess reserves becomes ineffective, instead, a rise in the rate of tax on vault cash is useful for pulling the economy out of the permanent liquidity trap because it allows the nominal deposit rate to fall to the level of the natural nominal interest rate. This is consistent with the suggestions by Goodfriend (2000), Buiter and Panigirtzoglou (2003), and Fukao (2005). In the present model, however, levying a tax on currency held by the public, which is practically difficult, is not required for overcoming the lower bound.
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