Essays on exchange rate pass through, monetary policy regimes, and financial development and growth
MetadataShow full item record
Monetary policy has become a key component of economic policies. Modern monetary policy has been shaped by a substantial amount of theoretical and empirical research over the past few decades. The thesis focuses on three particular areas where the influences of monetary policy have become of great importance over the recent decades. While the 1st chapter sets out the backdrop, the 2nd chapter focuses on exchange rate pass through elasticities and their macroeconomic determinants. Pass through is a source of inflation through imports in open economies and has reportedly been declining in a number of countries since the 1980s for aggregate prices level. Low average and persistent inflation has been suggested as one of the main reasons for this decline. Pass through is influenced by the monetary policy regimes. We first estimate the pass through elasticities and verify the evidence of declining pass through across different monetary policy regimes for 39 countries over the period 1981 to 2010 by constructing some relevant indices. We find the evidence of declining pass through over the period. Secondly, we verify the important macroeconomic determinants by including some macroeconomic variables and monetary policy regimes. Our findings reaffirmed the importance of inflation in determining pass through elasticities and suggest that inflation targeting monetary policy regime and greater central bank autonomy reduce pass through elasticities. In the 3rd chapter, we first provide a classification of de facto monetary policy regimes for 124 countries, which includes 7 exchange rate regimes and 4 inflation targeting and monetary targeting regimes. The previous studies had only classified de facto exchange rate regimes and ignored the underlying monetary policy frameworks in their classifications exercises. However, the outcome of such classifications will not be accurate, as some of the identical exchange rate regimes will have different monetary policy frameworks, such as inflation targeting, which needs to be taken into account in any proper assessment of the impact of the regimes on growth and inflation. Secondly, we evaluate the regime performances on growth and inflation by using pooled mean group (PMG) estimation method instead of GMM. PMG is more suitable for panel analysis with a large number of time series observations (𝑇) and the number of groups(𝑁). The findings suggest that monetary policy with nominal anchors is more conducive to growth. The 4th chapter focuses on the relationship between financial development and economic growth in terms of both the quality and volume of financial development in eight Asian and south east Asian emerging economies for the period 2003 to 2012. We have estimated the cost and profit efficiencies of the banks in these countries for the first time to measure the quality of financial institutions. Broad money growth and bank credit to the private sector as a percentage of GDP have been used for the volume measures. The findings suggest the importance of both the volume and the quality of financial development for growth in these countries. The 5th and the final chapter concludes.