This thesis presents two distinct essays on informal credit intermediation in developing economies and its implication for the conduct of monetary policy. Broadly, the study investigated the implication of informal credit intermediation on effective monetary policy. Available data reveal that informal credit intermediation has increased over the period. The IMF Financial Stability Board (2014) report revealed that the volume of financial intermediation via the non-bank sector in several economies has been increasing over the past decades. The report estimated informal intermediation to be about 40 per cent of total bank intermediation in the world. Notwithstanding the growth of the informal financial sector in most economies, the literature is salient on their role in monetary transmission. Therefore, this topic has become most relevant in the literature and for policymakers to understand the role played by these financial intermediaries in transmitting monetary impulses to the real sector. The first chapter presented a brief review of relevant literature on monetary effectiveness in developing economies. The chapter further presented the financial structure of Ghana and discussed its implication for monetary transmission. The second chapter empirically investigated the effect of informal credit intermediation on monetary transmission process in Ghana. Given the growth of informal credit activities in Ghana coupled with their interrelationship with the traditional banking system, their operations could have some direct or indirect effect on monetary policy. Particularly because, informal credit institutions are seen to operate similar to the traditional (formal) banks, even though their operations are not fully regulated by the central bank like traditional banks. The study employed a Factor Augmented Vector Auto-regression modeling approach and found that though interest rate pass-through is very weak, the presence of informal credit intermediation further dampens it. This suggests that informal credit intermediation contributes to the less effective monetary policy evident in Ghana. The third chapter set-up a Dynamic Stochastic General Equilibrium (DSGE) model to include formal and informal banks. In line with their operations, the formal bank is modeled to operate with the rich agents in the economy whiles the informal bank operates with the poor agents. The banks operate parallel with each other in the intermediation process except that the formal bank is regulated by 1 the central bank whiles the informal bank is not. This modeling strategy helped to identify the effect of monetary shocks in the presence of informal credit intermediation. Also, the study investigated how credit shock from both the informal and formal sector affect the aggregate economy. The study found that monetary shocks affect the formal financial sector differently from the informal sector. However, credit shock from the formal and informal sector has similar effect on the economy. The thesis concluded by discussing further possible applications and extension.

ESSAYS ON INFORMAL CREDIT INTERMEDIATION AND MONETARY POLICY EFFECTIVENESS / R.k. Ayisi ; supervisor: A Flamini ; tutor: P. Garella. - : . DIPARTIMENTO DI ECONOMIA, MANAGEMENT E METODI QUANTITATIVI, 2018 Jul 12. ((29. ciclo, Anno Accademico 2016. [10.13130/ayisi-richard-kwabi_phd2018-07-12].

ESSAYS ON INFORMAL CREDIT INTERMEDIATION AND MONETARY POLICY EFFECTIVENESS

R.K. Ayisi
2018

Abstract

This thesis presents two distinct essays on informal credit intermediation in developing economies and its implication for the conduct of monetary policy. Broadly, the study investigated the implication of informal credit intermediation on effective monetary policy. Available data reveal that informal credit intermediation has increased over the period. The IMF Financial Stability Board (2014) report revealed that the volume of financial intermediation via the non-bank sector in several economies has been increasing over the past decades. The report estimated informal intermediation to be about 40 per cent of total bank intermediation in the world. Notwithstanding the growth of the informal financial sector in most economies, the literature is salient on their role in monetary transmission. Therefore, this topic has become most relevant in the literature and for policymakers to understand the role played by these financial intermediaries in transmitting monetary impulses to the real sector. The first chapter presented a brief review of relevant literature on monetary effectiveness in developing economies. The chapter further presented the financial structure of Ghana and discussed its implication for monetary transmission. The second chapter empirically investigated the effect of informal credit intermediation on monetary transmission process in Ghana. Given the growth of informal credit activities in Ghana coupled with their interrelationship with the traditional banking system, their operations could have some direct or indirect effect on monetary policy. Particularly because, informal credit institutions are seen to operate similar to the traditional (formal) banks, even though their operations are not fully regulated by the central bank like traditional banks. The study employed a Factor Augmented Vector Auto-regression modeling approach and found that though interest rate pass-through is very weak, the presence of informal credit intermediation further dampens it. This suggests that informal credit intermediation contributes to the less effective monetary policy evident in Ghana. The third chapter set-up a Dynamic Stochastic General Equilibrium (DSGE) model to include formal and informal banks. In line with their operations, the formal bank is modeled to operate with the rich agents in the economy whiles the informal bank operates with the poor agents. The banks operate parallel with each other in the intermediation process except that the formal bank is regulated by 1 the central bank whiles the informal bank is not. This modeling strategy helped to identify the effect of monetary shocks in the presence of informal credit intermediation. Also, the study investigated how credit shock from both the informal and formal sector affect the aggregate economy. The study found that monetary shocks affect the formal financial sector differently from the informal sector. However, credit shock from the formal and informal sector has similar effect on the economy. The thesis concluded by discussing further possible applications and extension.
FLAMINI, ALESSANDRO
Settore SECS-P/01 - Economia Politica
ESSAYS ON INFORMAL CREDIT INTERMEDIATION AND MONETARY POLICY EFFECTIVENESS / R.k. Ayisi ; supervisor: A Flamini ; tutor: P. Garella. - : . DIPARTIMENTO DI ECONOMIA, MANAGEMENT E METODI QUANTITATIVI, 2018 Jul 12. ((29. ciclo, Anno Accademico 2016. [10.13130/ayisi-richard-kwabi_phd2018-07-12].
Doctoral Thesis
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Utilizza questo identificativo per citare o creare un link a questo documento: https://hdl.handle.net/2434/583479
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