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Manual on Analysis of Monetary transmission Mechanism Adopted

Central Banks in the COMESA region have adopted the use of the manual on analysis of monetary transmission mechanism using the time series data. The COMESA Monetary Institute (CMI) recently held a workshop in Nairobi Kenya from 7th – 11th May 2018, for Central Banks to discuss and validate the Manual which seeks to equip users with skills on modelling and analyzing monetary policy transmission mechanism. This skill is crucial since member Central Banks are currently moving gradually to inflation targeting monetary policy framework.

Bank Governors decided during the 23rd Meeting in Djibouti in March this year that the workshop to validate the manual was needed soon. The manual also tackles issues on “Application of Vector Autoregressive (VAR), Structural Vector Autoregressive (SVAR) and Vector error Correction Model (VECM) for analysis of monetary transmission mechanism”.

The manual utilizes strictly time series data, for the analysis of monetary policy transmission mechanisms. It demonstrates all steps from data organization to results interpretation using EVIEWS software.

The key questions which the analysis in the manual tries to address are: which transmission channels, or combination of channels (interest rate, bank lending, exchange rate, asset prices) are likely to be the most effective in transmitting monetary policy; and what is the timing and magnitude of the effects of policy changes on macroeconomic variables.

CMI Director Mr. Ibrahim Zeidy said the Manual will enable users to have a firm understanding of the process involved in the analysis of transmission mechanism of monetary policy.

Following the feedback from the workshop, Mr. Zeidy said the manual will now be published by CMI as a knowledge product that will provide member central banks with analytical guide on application of VAR, SVAR and VECM for analysis of transmission mechanism of monetary policy. The workshop was attended by participants from eleven COMESA Member states namely Burundi, Djibouti, Congo (D.R.), Kenya, Malawi, Mauritius, Sudan, Swaziland, Uganda, Zambia and Zimbabwe.