The term spread, inflation and economic activity in a simple model of the monetary transmission mechanism
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Date
2008-03-26T08:36:49Z
Authors
Murekezi, Gaju Brigitte
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Abstract
Abstract
This paper presents a simple and transparent framework for the monetary transmission
mechanism of the South African economy based on the model by Rudebusch and
Svensson (1999). This model is extended to consider the long rate and the credit channel
in the transmission mechanism. Firstly, we find that the credit channel plays a significant
role in the transmission mechanism. Secondly, despite the backward looking nature of the
model, impulse responses reveal that the term spread predicts output and inflation in the
South African economy.
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Keywords
term spread, credit channel, interst rate channel