ABSTRACT
This study investigates the effectiveness of the interest rate channel of monetary policy transmission in Zambia by employing the vector auto-regression (VAR) approach and focuses on the reduced-form relationships between money supply, inflation, real interest rate and real output by utilizing annual data for the period from 1980 to 2011. Using the 4 variable VAR model, the analysis was carried out by examining the dynamic nature of impulse response functions, multivariate Granger causality tests and variance decomposition estimates generated from the model. The main findings from the basic VAR model suggest that a decrease in money supply reduces output in the year following the shock and recovers in the third year but reduces again from the fourth year and the magnitude is small but significant. However, inflation rises first and peaks in the second year following the shock, before declining and rising again after the fifth year but as with output, the magnitude is small and significant. After adding the real interest rate variable to the basic model, money supply still affects output, inflation and real interest rate but the magnitudes are small and insignificant. The main conclusion drawn from the study is that monetary policy affects output and inflation but the interest rate channel is not effective in Zambia.
FUNDA, M (2021). An Investigation Of The Effectiveness Of The Interest Rate Channel Of Monetary Policy Transmission Mechanism In Zambia. Afribary. Retrieved from https://track.afribary.com/works/an-investigation-of-the-effectiveness-of-the-interest-rate-channel-of-monetary-policy-transmission-mechanism-in-zambia
FUNDA, MARTIN "An Investigation Of The Effectiveness Of The Interest Rate Channel Of Monetary Policy Transmission Mechanism In Zambia" Afribary. Afribary, 21 Apr. 2021, https://track.afribary.com/works/an-investigation-of-the-effectiveness-of-the-interest-rate-channel-of-monetary-policy-transmission-mechanism-in-zambia. Accessed 20 Nov. 2024.
FUNDA, MARTIN . "An Investigation Of The Effectiveness Of The Interest Rate Channel Of Monetary Policy Transmission Mechanism In Zambia". Afribary, Afribary, 21 Apr. 2021. Web. 20 Nov. 2024. < https://track.afribary.com/works/an-investigation-of-the-effectiveness-of-the-interest-rate-channel-of-monetary-policy-transmission-mechanism-in-zambia >.
FUNDA, MARTIN . "An Investigation Of The Effectiveness Of The Interest Rate Channel Of Monetary Policy Transmission Mechanism In Zambia" Afribary (2021). Accessed November 20, 2024. https://track.afribary.com/works/an-investigation-of-the-effectiveness-of-the-interest-rate-channel-of-monetary-policy-transmission-mechanism-in-zambia