Abstract

This study conducts a comparative analysis of the monetary policy transmission mechanism in the SADC region by assessing the importance and similarity of the interest rate channel for the SADC countries. Using the vector auto-regression (VAR) approach, the study focuses on the reduced-form relationships between short term interest rates, inflation and real output by utilizing quarterly data for the period from 2007Q1 to 2015Q4. The 3 variable VAR model analysis was carried out by examining the dynamic nature of multivariate Granger causality tests, impulse response functions and variance decomposition estimates generated from the model. The main findings from the study suggests that the effect of a monetary contraction on output seems relatively similar for some SADC countries but different for others in terms of the speed, direction, pattern and timing with magnitudes being small and not significant for most countries in the region, while large and significant for other countries in the region. The effect of monetary policy contraction on the inflation rate in terms of the timing, speed and direction of response is also relatively similar for some SADC countries but different when compared to others and just as with output, the magnitude seems to be small and not significant for most countries in the region. It can be concluded that the importance of the interest rate channel differs across countries in the SADC region with the main conclusion been that the interest rate channel is not effective for all SADC countries except for Botswana and South Africa.

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School	: School of Law, Economics and Government
Issued Date	: 2017

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