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on Central Banking |
| By: | Arisa Chantaraboontha |
| Abstract: | This paper examines the responses of foreign exchange rates to the Federal Reserve’s large-scale asset purchases (LSAPs) and forward guidance (FWG) from 2009 to 2022 using local projections. I confirm heterogeneous responses of examined foreign exchange rates to unconventional shocks, varying by magnitude, direction, and duration depending on monetary policy conditions and the type of shock. Both shocks caused the appreciation of foreign exchange rates against the US Dollar in all monetary policy cycles, except for the FWG shock during normalization periods of monetary policy. The FWG shock had a greater impact magnitude on the examined foreign exchange rates than the LSAPs shock. The effects of both unconventional shocks were more persistent during periods of zero lower bound (ZLB) on the policy interest rate than during normalization periods of monetary policy. However, the impact of such shocks on foreign exchange rates diminished within a couple of months, contrasting with the literature that finds more persistent effects. The implementation of variance decomposition reveals that the FWG shock had a significantly greater influence on foreign exchange rate variation than the LSAPs shock, emphasizing the importance of effective guidance communication to the markets. |
| Date: | 2025–02 |
| URL: | https://d.repec.org/n?u=RePEc:dpr:wpaper:1276 |
| By: | Ndzinisa, Patrick |
| Abstract: | The study examines how financial development affects the effectiveness of monetary policy in influencing output and inflation in South Africa, through its interaction with the repo rate. Monetary policy effectiveness in this relationship is measured by the responsiveness of output and inflation to an interaction-term between a financial development indicator and the repo rate.This is carried out by estimating an output and inflation equations incorporating the interaction-term as an explanatory variable in each of theoutput and inflation equations. If the coefficient of the interaction-terms is negative and significant it implies that the effectiveness of monetary policy in influencing output and inflation is enhanced. On the other hand, a positive and significant coefficient of the interaction-terms means that the interaction of the financial development with the repo rate dampens monetary policy effectiveness in influencing output and inflation. Considering the adoption of an Inflation Targeting Framework (ITF) monetary policy framework in 2000, the study further examines how the regime shift has affected the effectiveness of monetary policy in South Africa. The study employs an Autoregressive Distributed Lag (ARDL) model to analyse the data for long-run co integration and an Error Correction Model (ECM) to test for a short-run relationship. Additionally, the study uses a structural VAR to assess how long it takes for the interaction-terms to have full impact on output and inflation. The study concludes that the effect of monetary policy on output and inflation is enhanced through the interaction of the bank-based financial development indicator with the repo rate in South Africa. It also concludes that it takes about three quarters and four quarters for the bank-based interaction-term to have full impact on output and inflation respectively, which is quicker than it takes for the repo rate individually to have full impact on these variables. The study also finds that after the adoption of the ITF, the repo rate managed to restrain inflation to be within the targeted band at the expense of output. The study recommends that the South African Reserve Rank (SARB) should consider the bank-based financial development indicator when formulating its monetary policy. |
| Date: | 2025 |
| URL: | https://d.repec.org/n?u=RePEc:aer:wpaper:12656e95-0ea3-4a03-b89f-307848cd5f7f |
| By: | Ablam Estel Apeti; Bao-We-Wal Bambe |
| Abstract: | Since the 1990s, inflation targeting (IT) has been adopted by a growing number of developing countries, including in Africa, where South Africa, Ghana, and Uganda have implemented the monetary framework to promote macroeconomic stability. Despite extensive literature on the topic, little is known about the impact of IT on the performance of African economies. We fill this gap by applying the synthetic control method over the period 1990-2020 to estimate the IT effect from a counterfactual situation based on a comparison group. We find robust evidence that the IT framework has not significantly reduced inflation in any of the three countries. We then explore the underlying mechanisms and argue that weak Central bank independence and the frequent supply shocks to which African economies are exposed make it difficult for Central banks to achieve their inflation targets. |
| Date: | 2025 |
| URL: | https://d.repec.org/n?u=RePEc:aer:wpaper:f3726aa6-716f-45a0-8c58-fbb64bc93346 |
| By: | Okot, Nicholas; Shinyekwa, Isaac M. B.; Bulime, Enock N. W.; Luwedde, Justine |
| Abstract: | The fourth-generation technological innovations coupled with Fintech has evolved into global transition to e-money. In Uganda the uptake and usage of e-money services have exponentially grown since the introduction of mobile money services in 2009. This study examines the theoretical foundation of e-money economics and employs time-series econometric approaches on Uganda data for the period 2009Q1-2022Q4 to assess their implication on the stability of the money demand function and transmission of monetary policy. The test for stability following the estimation of the money demand function with autoregressive distributed lag (ARDL) and transmission mechanisms in the vector autoregressive (VAR) model indicate that, e-money distorts the stability of the money demand function in the short-run and is procyclical with monetary policy shock (policy interest rates adjustments). These attributes of e-money are likely to adversely affect the effectiveness of monetary policy transmissions. |
| Date: | 2025 |
| URL: | https://d.repec.org/n?u=RePEc:aer:wpaper:509360b0-6f34-4037-8acd-9780301c70cb |
| By: | Annika Camehl (Erasmus University Rotterdam); Tomasz Wo\'zniak (University of Melbourne) |
| Abstract: | We propose a novel Bayesian heteroskedastic Markov-switching structural vector autoregression with data-driven time-varying identification. The model selects among alternative patterns of exclusion restrictions to identify structural shocks within the Markov process regimes. We implement the selection through a multinomial prior distribution over these patterns, which is a spike'n'slab prior for individual parameters. By combining a Markov-switching structural matrix with heteroskedastic structural shocks following a stochastic volatility process, the model enables shock identification through time-varying volatility within a regime. As a result, the exclusion restrictions become over-identifying, and their selection is driven by the signal from the data. Our empirical application shows that data support time variation in the US monetary policy shock identification. We also verify that time-varying volatility identifies the monetary policy shock within the regimes. |
| Date: | 2025–02 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2502.19659 |
| By: | Okelo, Jimmy Apaa |
| Abstract: | Remittances are a major source of financing for many low-income countries. High costs, however, have held back remittance inflows. Estimates show that between 5% and 15% of remittances are lost due to the high costs. Mobile Money has emerged as a powerful tool for cross-border money transfers. Since it was launched in Uganda in 2012, cross-border transfers through mobile money increased tremendously. Inward remittances rose to US$ 45.5 million in December 2021, up from just US$ 6.5 million in 2013. Among the available Mobile Money products (deposits, withdrawals, person-to-person (p2p), person-to-business (p2b), airtime and data purchase), inward and outward remittances grew fastest in 2016-2022 with annual growth rates of 96.4% and 158.3%. The increased use of Mobile Money is a reprieve to lower costs. Data from the World Bank shows that mobile money operators charge the lowest costs. In addition to enhancing competition, convenience, and security, mobile money also serves as a price discovery platform, enabling customers to initiate transactions directly from their handsets without the need to visit operators' outlets. This allows users to transact when exchange rates are favorable. |
| Date: | 2025 |
| URL: | https://d.repec.org/n?u=RePEc:aer:wpaper:a7ec19e9-03e8-466f-bf91-8674bd0d2e02 |