Economics

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Browsing Economics by Subject "Credit"

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    The credit channel of monetary policy transmission in the selected emerging markets
    (University of Zululand, 2019) Ntshangase, Lwazi S.; Kaseeram, I.
    The credit channel has been investigated extensively in developed countries yet few studies have been conducted in emerging, developing and in less developed countries. This research employs a panel VAR model and five country-specific-VAR models to determine the effectiveness of the credit channel in the selected inflation targeting emerging markets (Brazil, Chile, Mexico, Russia and South Africa), that have implicitly or explicitly embraced the inflation targeting monetary policy framework, over the period 2000Q1-2016Q4. The balance sheet channel is not investigated due to a lack of data in the available database. The study adopted the traditional bank lending channel theory by Bernanke and Blinder (1988), according to which monetary policy rate shocks are propagated to economic variables through credit. The control variables in the models include gross domestic product, bank loans to the private sector, monetary policy rate, money supply, consumer price index and the nominal exchange rate. IRF are generated from the panel VAR model as averages, and compared to the IRF generated from each VAR model. Overall, the bank lending channel and interest rate channel were found to be according to theory and effective with a 1.5 period lag in the selected emerging markets. It is advisable for the five emerging countries to continue to develop innovations for greater efficiency in the conducting of monetary policy; this will further assist the more inelastic variables to become more responsive. The bank lending channel was found to be more effective in Brazil and Russia and the magnitudes of the decline of bank loans are quite similar for both countries, where, after the third period, the decline is about o.2% for a 1% initial shock to interest rates. However, the bank lending channel in South Africa, Chile and Mexico was found to be ineffective, perhaps due to the high indebtedness of consumers, perhaps arising out of financialization reasons. In the South African context, the authorities ought to revisit the National Credit Act to assess why bank loan issues are inelastic to monetary policy tightening.The causality patterns suggests that all variables Granger cause each other.
University of Zululand