The Reserve Surplus and Monetary Policy Transmission Mechanisms: An Approach

This study examines the transmission mechanisms of monetary policy in the Peruvian economy, focusing specifically on the relationship between the reserve surplus and its effect on output in the short run. Using a methodology based on vector autoregressive (VAR) models and the approach developed by Bernanke and Blinder, the study analyzes how monetary policy influences the money supply and credit to the private sector, taking into account the context of dollarization and currency substitution that characterizes Peru. The results indicate that the reserve surplus behaves as a good predictor of the level of economic activity, explaining approximately 20% of the variance in the forecast error for gross domestic product. However, monetary policy is found to have little influence on total credit, suggesting that banks can substitute resources from other sources of financing, thereby limiting the impact of the credit channel. The implications of this research point toward refining the Central Bank’s intervention, emphasizing the importance of the reserve surplus as a key indicator in monetary policy management. (Abstract and audio: Department of Economic Publications)