Evolving Monetary Policy Frameworks in Low-Income and Other Developing Countries
Evolving Monetary Policy Frameworks in Low-Income and Other Developing Countries

Author: International Monetary Fund

Publisher: International Monetary Fund

Published: 2015-10-23

Total Pages: 74

ISBN-13: 1498344062

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Over the past two decades, many low- and lower-middle income countries (LLMICs) have improved control over fiscal policy, liberalized and deepened financial markets, and stabilized inflation at moderate levels. Monetary policy frameworks that have helped achieve these ends are being challenged by continued financial development and increased exposure to global capital markets. Many policymakers aspire to move beyond the basics of stability to implement monetary policy frameworks that better anchor inflation and promote macroeconomic stability and growth. Many of these LLMICs are thus considering and implementing improvements to their monetary policy frameworks. The recent successes of some LLMICs and the experiences of emerging and advanced economies, both early in their policy modernization process and following the global financial crisis, are valuable in identifying desirable features of such frameworks. This paper draws on those lessons to provide guidance on key elements of effective monetary policy frameworks for LLMICs.

Can a Rule-Based Monetary Policy Framework Work in a Developing Country? The Case of Yemen
Can a Rule-Based Monetary Policy Framework Work in a Developing Country? The Case of Yemen

Author: Selim Elekdag

Publisher: International Monetary Fund

Published: 2007-01-01

Total Pages: 30

ISBN-13: 1451865708

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Monetary policy in Yemen is largely rudimentary and ad hoc in nature. The Central Bank of Yemen's (CBY) approach has been based on discretionary targeting of broad money without any clear target to anchor inflation expectations. This paper argues in favor of a new formal monetary policy framework for Yemen emphasizing a proactive and rule-based approach with a greater direct focus on price stability in the context of a flexible management of the exchange rate. Although, as in many developing countries, institutional capacity is a concern, adopting a more formal framework could impel the kind of changes that are required to strengthen the ability of the CBY in achieving low and stable rates of inflation over the medium term.

Conditionality in Evolving Monetary Policy Regimes
Conditionality in Evolving Monetary Policy Regimes

Author: International Monetary Fund

Publisher: International Monetary Fund

Published: 2014-05-03

Total Pages: 61

ISBN-13: 1498343694

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With single-digit inflation and substantial financial deepening, developing countries are adopting more flexible and forward-looking monetary policy frameworks and ascribing a greater role to policy interest rates and inflation objectives. While some countries have adopted formal inflation targeting regimes, others have developed frameworks with greater target flexibility to accommodate changing money demand, use of policy rates to signal the monetary policy stance, and implicit inflation targets.

Coordination of Monetary and Fiscal Policies
Coordination of Monetary and Fiscal Policies

Author: International Monetary Fund

Publisher: International Monetary Fund

Published: 1998-03-01

Total Pages: 33

ISBN-13: 1451844239

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Recently, monetary authorities have increasingly focused on implementing policies to ensure price stability and strengthen central bank independence. Simultaneously, in the fiscal area, market development has allowed public debt managers to focus more on cost minimization. This “divorce” of monetary and debt management functions in no way lessens the need for effective coordination of monetary and fiscal policy if overall economic performance is to be optimized and maintained in the long term. This paper analyzes these issues based on a review of the relevant literature and of country experiences from an institutional and operational perspective.

Monetary Policy Rules
Monetary Policy Rules

Author: John B. Taylor

Publisher: University of Chicago Press

Published: 2007-12-01

Total Pages: 460

ISBN-13: 0226791262

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This timely volume presents the latest thinking on the monetary policy rules and seeks to determine just what types of rules and policy guidelines function best. A unique cooperative research effort that allowed contributors to evaluate different policy rules using their own specific approaches, this collection presents their striking findings on the potential response of interest rates to an array of variables, including alterations in the rates of inflation, unemployment, and exchange. Monetary Policy Rules illustrates that simple policy rules are more robust and more efficient than complex rules with multiple variables. A state-of-the-art appraisal of the fundamental issues facing the Federal Reserve Board and other central banks, Monetary Policy Rules is essential reading for economic analysts and policymakers alike.

Can a Rule-based Monetary Policy Framework Work in a Developing Country?
Can a Rule-based Monetary Policy Framework Work in a Developing Country?

Author:

Publisher:

Published: 2007

Total Pages: 34

ISBN-13:

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Monetary policy in Yemen is largely rudimentary and ad hoc in nature. The Central Bank of Yemen's (CBY) approach has been based on discretionary targeting of broad money without any clear target to anchor inflation expectations. This paper argues in favor of a new formal monetary policy framework for Yemen emphasizing a proactive and rule-based approach with a greater direct focus on price stability in the context of a flexible management of the exchange rate. Although, as in many developing countries, institutional capacity is a concern, adopting a more formal framework could impel the kind of changes that are required to strengthen the ability of the CBY in achieving low and stable rates of inflation over the medium term

Foreign Exchange Intervention Rules for Central Banks: A Risk-based Framework
Foreign Exchange Intervention Rules for Central Banks: A Risk-based Framework

Author: Romain Lafarguette

Publisher: International Monetary Fund

Published: 2021-02-12

Total Pages: 33

ISBN-13: 1513569406

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This paper presents a rule for foreign exchange interventions (FXI), designed to preserve financial stability in floating exchange rate arrangements. The FXI rule addresses a market failure: the absence of hedging solution for tail exchange rate risk in the market (i.e. high volatility). Market impairment or overshoot of exchange rate between two equilibria could generate high volatility and threaten financial stability due to unhedged exposure to exchange rate risk in the economy. The rule uses the concept of Value at Risk (VaR) to define FXI triggers. While it provides to the market a hedge against tail risk, the rule allows the exchange rate to smoothly adjust to new equilibria. In addition, the rule is budget neutral over the medium term, encourages a prudent risk management in the market, and is more resilient to speculative attacks than other rules, such as fixed-volatility rules. The empirical methodology is backtested on Banco Mexico’s FXIs data between 2008 and 2016.

Monetary Policy Transmission in Emerging Markets and Developing Economies
Monetary Policy Transmission in Emerging Markets and Developing Economies

Author: Mr.Luis Brandao-Marques

Publisher: International Monetary Fund

Published: 2020-02-21

Total Pages: 54

ISBN-13: 1513529730

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Central banks in emerging and developing economies (EMDEs) have been modernizing their monetary policy frameworks, often moving toward inflation targeting (IT). However, questions regarding the strength of monetary policy transmission from interest rates to inflation and output have often stalled progress. We conduct a novel empirical analysis using Jordà’s (2005) approach for 40 EMDEs to shed a light on monetary transmission in these countries. We find that interest rate hikes reduce output growth and inflation, once we explicitly account for the behavior of the exchange rate. Having a modern monetary policy framework—adopting IT and independent and transparent central banks—matters more for monetary transmission than financial development.

Monetary Policy Implementation: Operational Issues for Countries with Evolving Monetary Policy Frameworks
Monetary Policy Implementation: Operational Issues for Countries with Evolving Monetary Policy Frameworks

Author: Nils Mæhle

Publisher: International Monetary Fund

Published: 2020-02-07

Total Pages: 57

ISBN-13: 1513526855

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This paper discusses operational issues for countries that want to reform their monetary policy frameworks. It argues that stabilizing short-term interest rates on a day-to-day basis has significant advantages, and thus that short-term interest rates, not reserve money, in most cases should be the daily operating target, including for countries relying on a money targeting policy strategy. The paper discusses how a policy formulation framework based on monetary aggregates can be combined with an operational framework that ensures more stable and predictable short-term rates to enhance policy transmission. It also discusses how to best configure an interest-rate-based operational framework when markets are underdeveloped and liqudity management capacity is weak.

Macroprudential Policy - An Organizing Framework - Background Paper
Macroprudential Policy - An Organizing Framework - Background Paper

Author: International Monetary Fund. Monetary and Capital Markets Department

Publisher: International Monetary Fund

Published: 2011-03-14

Total Pages: 33

ISBN-13: 1498339174

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MCM conducted a survey in December 2010 to take stock of international experiences with financial stability and the evolving macroprudential policy framework. The survey was designed to seek information in three broad areas: the institutional setup for macroprudential policy, the analytical approach to systemic risk monitoring, and the macroprudential policy toolkit. The survey was sent to 63 countries and the European Central Bank (ECB), including all countries in the G-20 and those subject to mandatory Financial Sector Assessment Programs (FSAPs). The target list is designed to cover a broad range of jurisdictions in all regions, but more weight is given to economies that are systemically important (see Annex for details). The response rate is 80 percent. This note provides a summary of the survey’s main findings.