Monetary policy transmission in an undeveloped South Pacific Island country: a case study of Samoa

Jayaraman, Tiruvalangadu K.; Dahalan, Jauhari

doi:10.1504/ijmef.2008.021146

Cited by 11 publications

(7 citation statements)

References 25 publications

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“…As the same time, Jayaraman and Choong (2009) show that the most effective channel of monetary policy transmission in Fiji is money supply using a simple VAR approach. Jayaraman and Dahalan (2009) also suggests that the money and exchange rate channels are important in transmitting monetary impulses to Samoa's output while monetary aggregates matter more for inflation. We follow a similar approach but take into account the pass˗through of international commodity prices and alternative channels of monetary and exchange transmission by using a more comprehensive set of external and macro-financial variables.…”

Section: Monetary and Exchange Transmission Mechanismsmentioning

confidence: 99%

Global Commodity Prices, Monetary Transmission, and Exchange Rate Pass-Through in the Pacific Islands

Peiris

Ding²

2012

IMF Working Papers

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Pacific Islands countries are vulnerable to commodity price shocks, and this poses challenges to monetary policy. The high degree of exchange rate pass-through to headline inflation and the weak monetary transmission mechanism in PICs suggest a greater efficacy of exchange rate changes in affecting inflation rather than monetary policy. To assess the tradeoff between the use of the exchange rate and monetary policy in macroeconomic stabilization, we employ a model-based approach to examine the optimal policy in response to the historical distribution of exogenous shocks in a Pacific Island (Tonga). The empirical evidence and model simulations tilt in the favor of exchange rate policy given the close relationship between exchange rate changes and headline inflation and the low interest rate sensitivity of aggregate demand.

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Section: Monetary and Exchange Transmission Mechanismsmentioning

confidence: 99%

Global Commodity Prices, Monetary Transmission, and Exchange Rate Pass-Through in the Pacific Islands

Peiris

Ding²

2012

IMF Working Papers

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“…The proper management of the latter also presupposes an adequate financial system and credit demand. As noted by Jayaraman and Choong (2010), Jayaraman and Dahalan (2008) and Ramlogan (2004), the former usually show an insufficient degree of development, while the latter tend to be weak in these kinds of economies. This entails, for instance, that rather than the interest rate, both the money and the exchange rate emerge as the main channel of monetary policy to affect the real economy (Jayaraman and Dahalan, 2008; Ramlogan, 2004).…”

Section: Literature Reviewmentioning

confidence: 81%

“…As noted by Jayaraman and Choong (2010), Jayaraman and Dahalan (2008) and Ramlogan (2004), the former usually show an insufficient degree of development, while the latter tend to be weak in these kinds of economies. This entails, for instance, that rather than the interest rate, both the money and the exchange rate emerge as the main channel of monetary policy to affect the real economy (Jayaraman and Dahalan, 2008; Ramlogan, 2004). Unsurprisingly, many small islands have historically opted for fixed or managed exchange rate regimes (IMF, 2019; Jayaraman and Choong, 2010; Yang et al, 2012).…”

Section: Literature Reviewmentioning

confidence: 81%

Monetary policy and exchange rate regime in tourist islands

Inchausti-Sintes

Pérez-Granja

2020

Tourism Economics

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The broad impact of the travel industry on economies has been comprehensively analysed in the tourism literature. Despite this, its consequences for monetary policy have remained unaddressed. This article aims at providing a first approach in this line for the case of three small tourist islands such as Cabo Verde, Mauritius and Seychelles. The research is based on a Bayesian estimation using a dynamic stochastic general equilibrium model (DSGE), and the optimal response to a tourism demand shock of four monetary policies is analysed. According to the results, both a conventional peg and an inflation-targeting policies achieve better economic performance. More precisely, the inflation is lower in the former. However, the rise in consumption and the gain in the external competitiveness are sharper in the latter. Finally, the other two policies, an inflation-targeting with managed exchange rate policy and an imported-inflation targeting policies, generate higher consumption and external competitiveness, but, also higher inflation and interest rate.

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“…21 21 Jayaraman and Dahalan (2009) show that in the case of Samoa, money (M1) and exchange rate channels are important channels in transmitting monetary impulses to output. In its exchange rate assessment for Fiji, IMF (2010) reports that a 1 per cent real depreciation leads to a 4 per cent increase in gross reserves.…”

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confidence: 99%

Monetary policy transmission and macroeconomic policy coordination in Pacific island countries

Yang¹,

Davies²,

Wang³

et al. 2012

Asian-Pac Economic Lit

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During the global financial crisis, central banks in Pacific island countries eased monetary policy to stimulate economic activity. Judging by the ensuing movements in commercial bank interest rates and private sector credit, monetary policy transmission appears to be weak. This is confirmed by an empirical examination of interest rate pass-through and credit growth. Weak credit demand and under-developed financial markets seem to have limited the effectiveness of monetary policy, but the inflexibility of exchange rates and rising real interest rates have also served to frustrate the central banks' efforts despite a supporting fiscal policy. While highlighting the importance of developing domestic financial markets in the long run, this experience also points to the need to coordinate macroeconomic policies and to use all macroeconomic tools available in conducting countercyclical policies, including exchange rate flexibility.

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Monetary policy transmission in an undeveloped South Pacific Island country: a case study of Samoa

Cited by 11 publications

References 25 publications

Global Commodity Prices, Monetary Transmission, and Exchange Rate Pass-Through in the Pacific Islands

Global Commodity Prices, Monetary Transmission, and Exchange Rate Pass-Through in the Pacific Islands

Monetary policy and exchange rate regime in tourist islands

Monetary policy transmission and macroeconomic policy coordination in Pacific island countries

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