
Contents
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1 Introduction 1 Introduction
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2 The Environment for Monetary Policy 2 The Environment for Monetary Policy
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2.1 Structure of the Economy and the Financial Sector 2.1 Structure of the Economy and the Financial Sector
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3 The Event Study 3 The Event Study
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3.1 The Run-Up 3.1 The Run-Up
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4 The Event and Its Aftermath 4 The Event and Its Aftermath
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4.1 The Interest Rate Channel 4.1 The Interest Rate Channel
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4.2 The Bank Lending Channel 4.2 The Bank Lending Channel
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4.3 The Exchange Rate Channel 4.3 The Exchange Rate Channel
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4.4 Output 4.4 Output
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4.5 Inflation 4.5 Inflation
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5 On The Role of Global Risk Appetite and Supply Shocks 5 On The Role of Global Risk Appetite and Supply Shocks
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6 Summary and Interpretations 6 Summary and Interpretations
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7 Conclusions 7 Conclusions
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Appendix 5A Appendix 5A
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References References
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5 The Monetary Transmission Mechanism: Lessons from a Dramatic Event
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Published:March 2018
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Abstract
Many central banks in low-income countries in sub-Saharan Africa are modernizing their monetary policy frameworks. Standard statistical procedures have had limited success in identifying the channels of monetary policy transmission in such countries. This chapter takes a case study approach and examines a significant tightening of monetary policy that took place in 2011 in four members of the East African Community: Kenya, Uganda, Tanzania, and Rwanda. The authors find evidence of the transmission mechanism in most of the countries. After a large policy-induced rise in the short-term interest rate in Kenya and Uganda, lending rates rose, the exchange rate appreciated, output growth tended to fall, and inflation declined. The other two countries present somewhat different pictures. Variations across countries can be explained mainly by differences in the policy regime.
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