The exchange rate channel and monetary policy transmission in Namibia

Abstract

This paper investigates the exchange rate channel of monetary policy transmission in Namibia over the quarterly 1993:Q1 - 2011:Q4. The empirical analysis was conducted using innovation accounting tools such as generalised impulse response functions and forecast error variance decompositions obtained from a structural vector autoregressive model (SVAR). The results show that the exchange rate channel is operational. That is, changes in the monetary policy instruments affect the exchange rate variable which in turn transmits the shocks to output and prices but weak and not so significant.