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Monetary Transmission Mechanism in the East African Community: An Empirical Investigation

Monetary Transmission Mechanism in the East African Community: An Empirical Investigation by Hamid Reza Davoodi
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Do changes in monetary policy affect inflation and output in the East African Community (EAC)? We find that (i) Monetary Transmission Mechanism (MTM) tends to be generally weak when using standard statistical inferences, but somewhat strong when using non-standard inference methods; (ii) when MTM is present, the precise transmission channels and their importance differ across countries; and (iii) reserve money and the policy rate, two frequently used instruments of monetary policy, sometimes move in directions that exert offsetting expansionary and contractionary effects on inflation—posing challenges to harmonization of monetary policies across the EAC and transition to a future East African Monetary Union. The paper offers some suggestions for strengthening the MTM in the EAC.
International Monetary Fund; February 2013
59 pages; ISBN 9781475553499
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Title: Monetary Transmission Mechanism in the East African Community: An Empirical Investigation
Author: Hamid Reza Davoodi; Shiv Dixit; Gabor Pinter