The Efficiency of The Interest Channel in The Context of Monetary Policy in Developed Countries

Year 2023, Volume: 38 Issue: 1, 175 - 191, 20.03.2023

Taner Taş , Kubilay Çağrı Yılmaz

https://doi.org/10.24988/ije.1103603

Abstract

In recent years, the consequences of globalization and global developments in an area or around the world have harmed monetary transmission channels, creating an axis shift and diminishing the efficiency of monetary policy instruments. There is significant evidence about the influence of foreign monetary policy transfer on the excess supply of credit, according to studies on the subject. As a result, dynamically unbundling different monetary policy channels or comparing the outcomes of various policies is regarded as a crucial observation. The efficiency of the interest rate channel of the monetary transmission mechanism is explored in this study using annual data from the IMF and World Bank databases for the countries included in the MSCI emerging markets index for the years 1995 to 2021. In the study, panel unit root tests, panel cointegration tests with structural breaks, and panel causality tests developed by Kónya (2006) were applied to the variables determined to contain cross-sectional dependence. Within the framework of the panel VAR model established in line with the results obtained from these tests, the efficiency of the interest channel was investigated with the impulse-response functions and variance decomposition methods. While interest rate shocks have no statistically significant impact on loans, they do have a beneficial impact on inflation in the first two years and a negative impact in the subsequent years (up to the 6th year). In conclusion, the findings of this analysis suggest that, while shock rises in interest rates have a modest influence on the gross domestic product, they do promote, albeit slightly, the drop in the inflation rate.

Keywords

Monetary Policy Transmission Channels, Interest Rates, Monetary Policy, Central Banks and Policies

Gelişmiş Ülkelerde Faiz Kanalının Para Politikası Etkinliği

Abstract

Küreselleşme ve küresel gelişmelerin bir bölgede ya da dünya genelindeki etkileri parasal aktarım kanallarını son yıllarda olumsuz etkilemiş, eksen kaymasına neden olmuş ve para politikası araçlarının etkinliğini azaltmıştır. Bu konuda yapılan araştırmalar, uluslararası para politikası transferinin kredi arz fazlası üzerindeki etkisi ile ilgili önemli kanıtlar olduğunu vurgulamaktadır. Bu nedenle, farklı para politikası kanallarının dinamik olarak ayrıştırılması veya farklı politikaların sonuçlarının karşılaştırılması önemli bir gözlem olarak değerlendirilmektedir. Bu çalışmada, MSCI gelişmekte olan piyasalar endeksinde yer alan ülkelere ait, IMF ve Dünya Bankası veri tabanlarından elde edilen ve 1995-2021 dönemlerini kapsayan yıllık veriler ile parasal aktarım mekanizmasının faiz oranı kanalının etkinliği araştırılmaktadır. Çalışmada yatay kesit bağımlılığı içerdiği belirlenen değişkenlere yapısal kırılmaları dikkate alan panel birim kök testleri, ve yapısal kırılmalı panel eşbütünleşme testleri ve son olarak Konya tarafından geliştirilen panel nedensellik testleri uygulanmıştır. Bu testlerden elde edilen sonuçlar doğrultusunda kurulan panel VAR modeli çerçevesinde, etki-tepki fonksiyonları ve varyans ayrıştırması yöntemleriyle faiz kanalının etkinliği araştırılmıştır. Krediler üzerinde faiz şoklarının istatistiksel olarak anlamlı bir etkisi yokken faiz şokları enflasyonu ilk 2 yıl pozitif etkilerken sonraki yıllarda negatif etkilemektedir. Özetle, bu çalışmanın sonuçları, faiz oranındaki şok artışların, gayri safi yurtiçi hasıla üzerinde etkisi kısıtlı olmakla birlikte, faiz oranlarındaki artışın enflasyon oranındaki azalışı zayıf olmakla birlikte desteklediği tespit edilmiştir.

Keywords

Para Politikası Aktarım Mekanizmaları, Faiz Oranları, Para Politikası, Merkez Bankaları ve Politikaları

References

• Ankargren, S., & Shahnazarian, H. (2019). The interaction between fiscal and monetary policies: Evidence from Sweden (No. 365). Sveriges Riksbank Working Paper Series.
• Azariadis, C., & Smith, B. (1998). Financial intermediation and regime switching in business cycles. American economic review, 516-536.
• Basten, C., & Mariathasan, M. (2018). How banks respond to negative interest rates: Evidence from the Swiss exemption threshold.
• Brandao-Marques, M. L., Gelos, M. R., Harjes, M. T., Sahay, M. R., & Xue, Y. (2020). Monetary policy transmission in emerging markets and developing economies. International Monetary Fund.
• Brayton, F., & Mauskopf, E. (1985). The Federal Reserve Board MPS quarterly econometric model of the US economy. Economic Modelling, 2(3), 170-292.
• Breusch, Trevor S. and Pagan, Adrian R., (1980), "The Lagrange Multiplier
• Test and Its Applications to Model Specification Ġn Econometrics," ReviewOf Economic Studies, Blackwell Publishing, Vol. 47 (1), pp. 239-253.
• Bulíř, A., & Vlček, J. (2021). Monetary transmission: Are emerging market and low-income countries different? Journal of Policy Modeling, 43(1), 95-108.
• Can, U., Bocuoglu, M. E., & Can, Z. G. (2020). How does the monetary transmission mechanism work? Evidence from Turkey. Borsa Istanbul Review, 20(4), 375-382.
• Cecchetti, S. G., & Krause, S. (2002). Central bank structure, policy efficiency, and macroeconomic performance: exploring empirical relationships. Review-Federal Reserve Bank of Saint Louis, 84(4), 47-60.
• Chortareas, G., Stasavage, D., & Sterne, G. (2002). Does it pay to be transparent? International evidence from central bank forecasts. Review-Federal Reserve Bank of Saint Louis, 84(4), 99-118.
• Christiano, L. J., Eichenbaum, M., & Evans, C. L. (1999). Monetary policy shocks: What have we learned and to what end? Handbook of macroeconomics, 1, 65-148.
• Dincer, N., & Eichengreen, B. (2007). Central bank transparency: where, why, and with what effects?
• Dönek, E. (1995). “Relative Effectiveness of Monetary and Fiscal Policies on GNP in the Turkish Economy”, Erciyes Üniversitesi Sosyal Bilimler Enstitüsü Dergisi, S. 6, s. 409-415.
• Dungey, M., & Fry, R. (2009). The identification of fiscal and monetary policy in a structural VAR. Economic Modelling, 26(6), 1147-1160.
• Égert, B., & MacDonald, R. (2009). Monetary transmission mechanism in Central and Eastern Europe: Surveying the surveyable. Journal of Economic Surveys, 23(2), 277-327.
• Elsayed, A. H., Naifar, N., & Nasreen, S. (2022). Financial Stability and Monetary Policy Reaction: Evidence from the GCC Countries. The Quarterly Review of Economics and Finance.
• Fatás, A., Mihov, I., & Rose, A. K. (2007). Quantitative goals for monetary policy. Journal of Money, Credit and Banking, 39(5), 1163-1176.
• Gertler, M., & Gilchrist, S. (1993). The role of credit market imperfections in the monetary transmission mechanism: arguments and evidence. The Scandinavian Journal of Economics, 43-64.
• Gross, J., & Zahner, J. (2021). What is on the ECB’s mind? Monetary policy before and after the global financial crisis. Journal of Macroeconomics, 68, 103292.
• Hadri, K. and Kurozumi, E., (2012). “A simple panel stationarity test in the presence of serial correlation and a common factor”, Economic Letters, 115, s.31-34.
• Hansen, B. E. (2000). Sample splitting and threshold estimation. Econometrica, 68(3), 575-603.
• Im, K. S., Lee, J., & Tieslau, M. (2005). Panel LM unit‐root tests with level shifts. Oxford Bulletin of Economics and Statistics, 67(3), 393-419.
• Kaminska, I., Mumtaz, H., & Šustek, R. (2021). Monetary policy surprises and their transmission through term premia and expected interest rates. Journal of Monetary Economics, 124, 48-65.
• Kashyap, A. K., Stein, J. C., & Jeremy, C. (1995). The role of banks in the transmission of monetary policy. In Carnegie Rochester Conference Series on Public Policy (Vol. 42, pp. 151-195).
• Kim, Y. (1995). The International Monetary System Since World War II. Growth and Change, 26(1), 161-178.
• Kónya, L. (2006). Exports and growth: Granger causality analysis on OECD countries with a panel data approach. Economic Modelling, 23(6), 978-992.
• Lee, S. and Park, J., (2022). Identifying monetary policy shocks using economic forecasts in Korea, Economic Modelling.
• Miranda-Agrippino, S., & Ricco, G. (2021). The transmission of monetary policy shocks. American Economic Journal: Macroeconomics, 13(3), 74-107.
• Mountford, A., & Uhlig, H. (2009). What are the effects of fiscal policy shocks? Journal of applied econometrics, 24(6), 960-992.
• Nakamura, E., & Steinsson, J. (2018). High-frequency identification of monetary non-neutrality: the information effect. The Quarterly Journal of Economics, 133(3), 1283-1330.
• Papadamou, S., Sidiropoulos, M., & Spyromitros, E. (2015). Central bank transparency and the interest rate channel: Evidence from emerging economies. Economic Modelling, 48, 167-174.
• Peek, J., & Rosengren, E. S. (2005). Unnatural selection: Perverse incentives and the misallocation of credit in Japan. American Economic Review, 95(4), 1144-1166.
• Pesaran, H, M. ve T. Yamagata. (2008). Testing Slope Homogeneity in Large Panels,Journal of Econometrics, 142: 50-93.
• Pesaran, H., M. (2004). General Diagnostic Tests for Cross Section Dependence in
• Panels, Working Paper 0435, University of Cambridge.
• Pesaran, H., M., Ullah, A. ve T. Yamagata (2008). A Bias-Adjusted LM test of Error Crosssection Independence, The Econometrics Journal, 11(1): 105-127.
• Pesaran, M., (2007). “A simple panel unit root rest in the presence of cross-section dependence”, Journal of Applied Econometrics, 22, s.265-312.
• Reifschneider, D., Tetlow, R., & Williams, J. (1999). Aggregate disturbances, monetary policy, and the macroeconomy: The FRB/US perspective. Fed. Res. Bull., 85, 1.
• Romer, C., & Romer, D. (1990). New Evidence on the Monetary Transmission Mechanism (Brookings Papers on Economic Activity).
• Schelling, T., & Towbin, P. (2020). Negative interest rates, deposit funding, and bank lending (No. 2020-05). Swiss National Bank.
• Seyrek, İ., Duman, M., & Sarıkaya, M. (2004). Parasal aktarım mekanizması ve para politikası aracı: Türkiye’de aktarım mekanizması. CÜ İktisadi ve İdari Bilimler Dergisi, 5(1), 201-212.
• Sims, C.A. (1980). Macroeconomics and Reality, Econometrica, XLVIII, 1, 1-48.
• Spyromitros, E., & Tuysuz, S. (2008). Do monetary policy transparency, independence and credibility enhance macro-financial stability? Available at SSRN 1309737.
• Wei, X., & Han, L. (2021). The impact of COVID-19 pandemic on transmission of monetary policy to financial markets. International Review of Financial Analysis, 74, 101705.
• Westerlund, J. (2006). Testing for panel cointegration with multiple structural breaks. Oxford Bulletin of Economics and Statistics, 68(1), 101-132.
• Westerlund, J. (2007). Testing for error correction in panel data. Oxford Bulletin of Economics and statistics, 69(6), 709-748.
• Wulandari, R. (2012). Do credit channel and interest rate channel play important role in monetary transmission mechanism in Indonesia? A structural vector autoregression model. Procedia-Social and Behavioral Sciences, 65, 557-563.
• Yildirtan, D. C., & Sarili, S. (2017). Panel Data Analysis of Monetary Transmission Mechanism for European Union Countries. Journal of Social Science Studies, 4(2), 42-56.