The macroeconomic effects of unconventional monetary policies in a commodity-exporting economy: Evidence from Mongolia

This paper examines the macroeconomic effects of unconventional monetary policies in Mongolia, a developing and commodity-exporting economy. Within a Bayesian structural vector autoregression framework, central bank balance sheet, policy rate, demand, and supply shocks are identified using a combination of sign and zero restrictions. An expansionary balance sheet shock stimulates bank lending and M2, decreases interest rate spread, leads to a depreciation of the domestic currency, and increases output and consumer prices. The estimated output and consumer price effects are qualitatively similar to the effects of conventional monetary policy, while the impacts on the exchange rate and foreign exchange reserves are different. We also find favourable evidence for the delayed overshooting response of the exchange rate to the balance sheet shock and reveal that financial friction amplifies the effects of demand and supply shocks on the Mongolian economy.