Monetary policy transmission mechanism in post-communist economies: Evidence from Uzbekistan

This study aims to evaluate the transmission mechanisms of monetary policy in a post-communist economy using structural vector autoregression (SVAR) model. We constructed two SVAR models employing both recursive and non-recursive approaches to identify monetary policy shocks and analyze how other variables in the system respond to these shocks. The findings of the study are as follows: First, the recursively identified structure produced price and exchange rate puzzles, where output and inflation reacted to unexpected monetary policy shocks in a manner inconsistent with theoretical expectations. Second, a non-recursive structure under zero contemporaneous restrictions was applied to address the anomalies found with the recursive scheme. The non-recursive model generated outcomes that resolved both the price and exchange rate puzzles. Third, the exchange rate is more responsive to monetary policy disturbances than interest rates in the non-recursive model, as reflected by impulse response functions (IRFs), leading us to conclude that the exchange rate channel operates more effectively than the interest rate channel in Uzbekistan.