OPENNESS AND THE STRENGTH OF MONETARY TRANSMISSION: INTERNATIONAL EVIDENCE

This study explores cross-country variations in the size of the effects of a monetary policy shock on output using the sample of 48 developed and developing countries. The structural vector autoregression model is used to estimate monetary policy effects for each country separately. Based on the estimated impulse responses, we construct a measure of the short-run monetary policy effect on output, which is used as the dependent variable in a cross-country regression. Our results suggest that the effects of monetary policy shock on output are significantly influenced by trade openness, exchange rate regime, correlation with the US and for European countries with the German economy, and the development of the banking sector.