Anism of Monetary Policy in Small Developing Countries: an Application to Trinidad and Tobago

Relatively little is known about the transmission mechanism of monetary policy in small developing countries. In such countries financial markets tend to be relatively unsophisticated hence monetary policy is likely to affect the real sector by altering the quantity and availability of credit rather than the price of credit. Using a structural VAR analysis it is found that the credit channel is dominant in Trinidad and Tobago. The findings can assist policy makers in other developing countries in the design and implementation of monetary policy.