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Monetary policy and its transmission mechanisms in Eritrea

Abstract
The main purpose of this study is to identify the best practices of monetary policy implementation in the Eritrean economy. As such, the paper examines what kind of monetary policy and transmission mechanisms are relevant to the Eritrean economy. It also addresses which channels are effective and which are not and why. Vector Autoregressive modelling is employed over the study period 1996Q1–2008Q4. This paper addresses the argument that the bank lending is the sole functioning channel in low income economies. We find that interest rate and official exchange rate channels are inoperative. However, effective exchange rate and credit channels exist through the black foreign exchange market and credit issued to the government sector. The main policy implication of this study is that the Bank of Eritrea might be able to control inflation through manipulating the reserve requirement ratio.
Type
Journal Article
Type of thesis
Series
Citation
Holmes, M. J. & Mengesha, L. G. (2013). Monetary policy and its transmission mechanisms in Eritrea. Journal of Policy Modeling, 35(5), 766-780.
Date
2013
Publisher
Elsevier
Degree
Supervisors
Rights
Publisher version