Analysing the Effectiveness of Monetary Transmission Mechanism in Mozambique: A VAR Model Approach

Abstract

This study analyses the effectiveness of monetary transmission mechanism in Mozambique spanning from January 2008 to December 2022, employing a Vector Autoregressive (VAR) model. The analysis focuses on Gross Domestic Product (GDP) and inflation, exploring how these variables respond to changes in monetary policy. The study’s findings underscore a negligible impact of monetary transmission channel variables on GDP. In terms of inflation, the study identifies the existence of interest rate, money, and exchange channel, while credit channel exhibit negligible effect. Variance decomposition and impulse response analysis confirm the transitory nature of monetary shocks on GDP and the comparatively stronger influence on inflation.