Monetary Policy Transmission Mechanism in Developing and Emerging Market Economies
: The case of Ethiopia and India

  • Demilie Basha Hailu

Student thesis: Master typesSpecialised Master in International and Development Economics


The study examined effectiveness and challenges of monetary policy transmission channels of India and Ethiopia using quarterly data from 1982Q1 to 2019Q4. To do so SVAR is used to examine the sign and duration of response of output and price to monetary policy shocks and channels of monetary policy for both Ethiopia and India. Exchange rate channel is important channel in India and explains about 12.95% and 13.14% of variation in GDP and price respectively. Whereas asset price channel is found as a weak monetary policy transmission channel and private credit channel is also statistically insignificant at 95% confidence interval. Low banking sectors’ efficiency level, prevalence of bad loans, high stock market volatility and lower stock market depth, high government interference in the form of big borrower and low status of central bank independence are some of the challenging factors for effectiveness of monetary policy transmission channels in India. Money supply affects price, exchange rate and credit positively in Ethiopia. Exchange rate is an important channel in Ethiopia and explains about 20% of variation in price. Lending interest rate and private credit by banks are found insignificant at 95% confidence interval in Ethiopia. Different factors are responsible for the effectiveness of monetary policy transmission channels such as higher bank costs, volatility of commercial banks’ banking system, less usage of banking services among the people and low habit of using electronics machines.
Date of Award2021
Original languageEnglish
Awarding Institution
  • University of Namur
SupervisorYULIYA RYCHALOVSKA (Supervisor) & Luca Farè (Co-Supervisor)


  • monetary policy transmission channel
  • SVRA
  • impulse response

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