Impact of monetary policy on the macroeconomy in Uzbekistan

Purpose This study aims to examine the transmission mechanism of monetary policy in Uzbekistan, with a particular focus on the effectiveness and asymmetry of interest rate, exchange rate and credit channels. Design/methodology/approach The analysis employs a vector autoregression with exogenous variables (VARX) model and an asymmetric VARX model using monthly data from 2013 to 2021. The study incorporates domestic monetary, financial and real sector variables while controlling for external shocks through oil prices and US interest rates. Impulse response functions and generalized forecast error variance decomposition are used to identify the impact of monetary policy shocks on inflation and output. Findings The results show that the exchange rate channel is the most effective in transmitting monetary policy, significantly influencing both inflation and output. In contrast, the interest rate channel appears largely ineffective and the credit channel affects inflation but not growth. The asymmetric VARX model reveals that expansionary policy shocks increase inflation and depreciate the currency but have limited effects on output. Contractionary shocks show weak and statistically insignificant responses. Originality/value This study provides the first empirical analysis of asymmetric monetary policy transmission in Uzbekistan using both VARX and asymmetric VARX models. It highlights the structural weaknesses in Uzbekistan’s monetary transmission and underscores the importance of developing an integrated policy framework combining monetary, exchange rate and macroprudential policies.