Monetary policy transmission and growth of the manufacturing sector in Algeria
The principal objective of this study is to investigate the relationship between monetary policy and growth of the manufacturing sector in Algeria. Using a structural vector autoregressive model and quarterly frequency data for the period 1980Q1 to 2010Q4, the study finds no evidence that money supp...
| Main Authors: | , |
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| Format: | Article |
| Language: | English |
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LLC "CPC "Business Perspectives"
2016-12-01
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| Series: | Investment Management & Financial Innovations |
| Online Access: | https://businessperspectives.org/images/pdf/applications/publishing/templates/article/assets/8101/imfi_en_2016_04cont_Omolade.pdf |
| Summary: | The principal objective of this study is to investigate the relationship between monetary policy and growth of the manufacturing sector in Algeria. Using a structural vector autoregressive model and quarterly frequency data for the period 1980Q1 to 2010Q4, the study finds no evidence that money supply responds to fluctuations in manufacturing sector growth or Gross Domestic Product (GDP) growth. Interest rates, however, are seen to explain nearly a third of the variations in manufacturing output growth, suggesting that the manufacturing sector is sensitive to interest rates. The study also reveals that money supply variations are largely explained by changes in interest rates. A peek at the monetary transmission process reveals that Algeria employs monetary aggregates as the primary operating tool of monetary policy. The monetary authorities adjust total money supply in response to any movements in the rate of interest, probably to keep the rate of interest within a certain target given other developments in the fundamentals. The interest rates, in turn, play an important role in determining variations in manufacturing sector growth. In addition, the interest rates significantly affect exchange rates, which are observed to respond to changes in overall GDP growth. It is the overall GDP growth that has the largest influence on manufacturing sector growth, probably due to strong forward and backward linkages between the manufacturing sector and other sectors of the economy.
Keywords: Monetary policy, transmission mechanism, manufacturing output, oil price shocks. JEL Classifications: E23, E31, E52 |
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| ISSN: | 1810-4967 1812-9358 |