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Introduction: Monetary policy resolutions issued by central banks play effective role in economy when accompanied with interest variable. In Keynesian approach to finance, interest is treated as the main determinant underlying financial policy resolutions. Thus interest is a pivotal factor in monetary transmission mechanism. Tight monetary policy practices, essentially decreasing money supply, eventually lead to a slump in investments, total demand and national income due to the increase in real interest rates.

Objective: The aim of this study is to determine what type of effects do monetary policy practitioner in Turkey have on macroeconomic variables via the interest channel of monetary transmission mechanism.

Methodology: Based on this objective, variables that could help in unveiling CBT overnight interest rates, direct fixed capital investment (GSSO), real gross domestic product (RGDP), industry production index (SUE) and domestic producer price index (YUFE) variables and that could explain monetary functions of transmission mechanism’s interest channel were selected. For the variables constituting the research topic, collected data belong the period of 2003Q1–2018Q3.

Findings: In the study relation between the variables has been analyzed under two parts via harnessing Toda–Yamamoto casualty test. In the first part, results of Toda–Yamamoto causality test from RGDP, GSSO and interest rate (FO) variables have been presented. The results manifest that interest channel directly affects direct fixed capital investment and RGDP. Interest channel was found to be effective on these variables of the analysis. In the second part, Toda–Yamamoto causality test was harnessed for SUE, YUFE and FO variables. Interest channel did not provide a result that affected YUFE and SUE.

A thorough understanding of transmission mechanism is a key to a successful conduct of monetary policy. This chapter attempts to improve knowledge in this respect by examining the impacts of commercial bank risks on the transmission of monetary policy. We investigate the impact of monetary policy on bank risk in Vietnam pre and post 2008 global financial crisis employing a unique and disaggregated bank level data set from 2003 to 2012. The results of panel data estimation indicate that the bank lending channel of monetary is evidenced in Vietnam. In addition, we find that the transmission mechanism is affected by characteristics of commercial banks.

In seminal work, Den Haan et al. (2007, 2010, 2011) show business loans respond in the opposite direction of what may be intended by monetary policy action in the United States and Canada. Based on various approaches, identification schemes, and samples, we document evidence this loan puzzle is not exclusive to developed economies but is also pervasive in emerging markets. We find business loans generally decline following expansionary monetary policy shocks. A preponderance of statistical and structural evidence indicates important transmissions of this puzzle from the United States to emerging markets.

This chapter argues that models trying to explain the spread of drug use should not be based on standard epidemiological models developed to describe the spread of infectious diseases. The main weaknesses of the standard model are the lack of attention to micro-foundations and the inappropriateness of several of its assumptions in the context of drug use. An approach based on mechanisms and social interaction is argued to provide a promising alternative to the standard approach. To illustrate this, a model of the spread of drugs based on two mechanisms has been developed (observational learning and social stigma). Lastly, some of the difficulties in testing and deriving policy implications in these models are discussed.

This chapter conducts an event study of 30 quantitative easing (QE) announcements made by 21 central banks on daily government bond yields and bilateral US dollar exchange rates in March and April 2020, in the midst of the global financial turmoil triggered by the COVID-19 outbreak. The chapter also investigates the transmission of innovations to long-term interest rates in a standard GVAR model estimated with quarterly pre-COVID-19 data. The authors find that QE has not lost effectiveness in advanced economies and that its international transmission is consistent with the working of long-run uncovered interest rate parity and a large dollar shortage shock during the COVID-19 period. In emerging markets, the QE impact on bond yields is much stronger and its transmission to exchange rates is qualitatively different than in advanced economies. The GVAR evidence that the authors report illustrates the Fed’s pivotal role in the global transmission of long-term interest rate shocks, but also the ample scope for country-specific interventions to affect local financial market conditions, even after controlling for common factors and spillovers from other countries. The GVAR evidence also shows that QE interventions can have sizable real effects on output driven by a very persistent impact on long-term interest rates.

European Union (EU) central and eastern economies have gone through a process of structural change since 1989, when the post-communist transition started. This process was afterwards reinforced by the three EU enlargement waves that took place in 2004, 2007 and 2013. Though exhibiting low levels of aggregate productivity, this group of countries joined the EU with higher levels of human capital than the southern member states, an advantage that should have accelerated real convergence towards the EU15. However, evidence to date suggests that the convergence process came to a halt in 2007–2008 when massive capital inflows stopped, highlighting the fragilities of the growth strategies implemented so far. In these peripheral countries, structural change has been characterised by an expanding services sector alongside growing income inequality. The two strands of literature on these issues highlight that: (a) an expanding services sector may not be detrimental for growth, quite the opposite, depending on services composition and on the capacity of services sub-sectors to incorporate information and communication technologies (ICTs); and (b) inequality is negatively related to growth through the fiscal policy, socio-political instability, borrowing constraints to investment in education and endogenous fertility channels and positively through the savings channel and incentives. We analyse the nexus between structural change, inequality and growth in this group of countries highlighting income inequality as a potential mechanism that connects the other two variables. We provide a descriptive quantitative analysis of the profiles of structural change and income inequality in our sample and apply dynamic panel methods to investigate the existence of causality among services sector expansion, inequality and aggregate productivity considering a maximum period between 1980 and 2010.

All over the world, the role of central banks is being redefined following the outbreak of the global financial crisis and subsequent breakdown of the “great moderation” consensus. Consequently, most advanced economies adopted non-conventional approaches of monetary policy which resulted in spill-overs to emerging markets and developing countries with implications on their financial system and monetary policy transmission. This, coupled with, internal developments in the financial systems of developing countries necessitated modifications of not only monetary policy frameworks but also responsibilities of most central banks. This chapter acknowledges possible evolutions of the financial structure variables in developing countries and uses data from Kenya to analyze the dynamic linkages between financial sector variables and monetary policy transmission in the light of the financial crisis. The study used structural vector autoregression to examine the relationship between financial structure variables and monetary policy as well as assess the relative importance of various monetary transmission channels in Kenya. The results show that the changing financial structure represented by credit to the private sector and stock market indicators in Kenya only slightly altered relative importance of monetary policy transmission. The insignificance of credit to the private sector suggests that the importance attached to the bank lending channel in previous studies is waning while the marginal significance of the stock market indicator signals the potential for asset price channel. The results also indicate that the interest rate and exchange rate channels are relatively more important in Kenya while the asset prices is only marginally significant and bank lending channel is the weakest in the intermediate stage of monetary policy transmission. However, transmission of monetary policy to the ultimate objectives is somewhat slow and weak to inflation and almost absent to output. The result implies a limited role of monetary policy on growth and questions the wisdom of pursuing multiple objectives.