The transmission mechanism of monetary policy

Abstract

This paper presents an empirical analysis of the monetary transmission mechanism in four Caribbean countries: Jamaica, Trinidad and Tobago, Barbados and Guyana. This research is timely since little is known about the transmission mechanism of monetary policy in developing countries in general and in the Caribbean in particular. In developing countries financial markets tend to be relatively unsophisticated hence monetary policy is likely to affect the real sector by altering the quantity and availability of credit rather than the price of credit. The results show that the credit and exchange rate channels are more important than the money channel in transmitting impulses from the financial sector to the real sector. The findings can assist policy makers in other developing countries in the design and implementation of monetary policy.

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