Conditionality in Evolving Monetary Policy Regimes

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.

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Central bank transparency, inflation targeting and monetary policy: a panel data approach

Journal of Economic Studies ◽

10.1108/jes-07-2017-0211 ◽

2018 ◽

Vol 45 (6) ◽

pp. 1159-1174 ◽

Cited By ~ 2

Author(s):

Gabriel Caldas Montes ◽

Cristiane Gea

Keyword(s):

Developing Countries ◽

Monetary Policy ◽

Panel Data ◽

Interest Rate ◽

Central Bank ◽

Interest Rates ◽

Inflation Targeting ◽

Content Type ◽

Central Bank Transparency ◽

Policy Interest

Purpose The evidence concerning the effects of the inflation targeting (IT) regime as well as greater central bank transparency on monetary policy interest rates is not conclusive, and the following questions remain open. What is the effect of adopting IT on both the level and volatility of monetary policy interest rate? Does central bank transparency affect the level of the monetary policy interest rate and its volatility? Are these effects greater in developing countries? The purpose of this paper is to contribute to the literature by answering these questions. Hence, the paper analyzes the effects of IT and central bank transparency on monetary policy. Design/methodology/approach The analysis uses a sample of 48 countries (31 developing) comprising the period between 1998 and 2014. Based on panel data methodology, estimates are made for the full sample, and then for the sample of developing countries. Findings Countries that adopt the IT regime tend to have lower levels of monetary policy interest rates, as well as lower interest rate volatility. The effect of adopting IT on both the level and volatility of the basic interest rate is smaller in developing countries. Besides, countries with more transparent central banks have lower levels of monetary policy interest rates, as well as lower interest rate volatility. In turn, the effect of central bank transparency on both the level and volatility of the basic interest rate is greater in developing countries. Practical implications The study brings important practical implications regarding the influence of both the IT regime and central bank transparency on monetary policy. Originality/value Studies have sought to analyze whether IT and central bank transparency are effective to control inflation. However, few studies analyze the influence of IT and central bank transparency on interest rates. This study differs from the few existing studies since: the analysis is done not only for the effect of transparency on the level of the monetary policy interest rate, but also on its volatility; the central bank transparency index that is used has never been utilized in this sort of analysis; and the study uses panel data methodology, and compares the results between different samples.

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Macroeconomic Policy in Japan

Asian Economic Papers ◽

10.1162/15353510260187454 ◽

2002 ◽

Vol 1 (2) ◽

pp. 133-165 ◽

Cited By ~ 5

Author(s):

Warwick J. McKibbin

Keyword(s):

Monetary Policy ◽

Interest Rates ◽

Inflation Targeting ◽

Macroeconomic Policy ◽

Japanese Economy ◽

Open Market ◽

Government Bonds ◽

Fiscal Adjustments ◽

Inflation Targets

This paper explores the composition of the macroeconomic policy packages that would be effective in stimulating the Japanese economy. An empirical econometric model is used to predict the consequences of a monetary stimulus consisting of an open-market purchase of government bonds by the Bank of Japan combined with the announcement and implementation of inflation targeting in Japan. The paper also compares the impacts of permanent, temporary, and phased fiscal adjustments. The model predicts that monetary policy would be effective in stimulating the Japanese economy through causing a depreciation of the yen. Similarly, a substantial fiscal consolidation in Japan would be only mildly contractionary for the first two years but then would yield substantial long-term benefits to the Japanese economy. Combining a credible fiscal contraction that is phased in over three years with an inflation target would be likely to provide a powerful macroeconomic stimulus to the Japanese economy, through a weaker exchange rate and lower long-term real interest rates, and would sustain higher growth in Japan for a decade. Thus, a switch in the macroeconomic policy mix toward a loose monetary policy (e.g., setting inflation targets between 2 and 3 percent) and a tight fiscal policy is likely to be an important part of a successful package of reforms to raise Japanese productivity growth over the coming years.

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Monetary Policy and Financial Stability

Finance and Economics Discussion Series ◽

10.17016/feds.2020.101 ◽

2020 ◽

Vol 2020 (101) ◽

pp. 1-36

Author(s):

Isabel Cairó ◽

◽

Jae Sim ◽

Keyword(s):

Monetary Policy ◽

Interest Rates ◽

Financial Stability ◽

Inflation Targeting ◽

Global Financial Crisis ◽

Price Stability ◽

Policy Regimes ◽

Household Sector ◽

Nominal Interest Rates ◽

Credit Cycle

The 2008 Global Financial Crisis called into question the narrow focus on price stability of inflation targeting regimes. This paper studies the relationship between price stability and financial stability by analyzing alternative monetary policy regimes for an economy that experiences endogenous financial crises due to excessive household sector leverage. We reach four conclusions. First, a central bank can improve both price stability and financial stability by adopting an aggressive inflation targeting regime, in the absence of the zero lower bound (ZLB) constraint on nominal interest rates. Second, in the presence of the ZLB constraint, an aggressive inflation targeting regime may undermine both price stability and financial stability. Third, an aggressive price-level targeting regime can improve both price stability and financial stability, regardless of the presence of the ZLB constraint. Finally, a leaning against the wind policy can be detrimental to both price stability and financial stability when the credit cycle is driven by countercyclical household sector leverage. In this environment, leaning with credit spreads can be more effective.

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Analysis of debt burden and credit of corporate sector: Estimates for Russia and cross-country cases

Voprosy Ekonomiki ◽

10.32609/0042-8736-2018-5-25-48 ◽

2018 ◽

pp. 25-48 ◽

Cited By ~ 1

Author(s):

S. V. Sheremeta ◽

A. N. Mogilat

Keyword(s):

Developing Countries ◽

Monetary Policy ◽

Interest Rates ◽

Economic Activity ◽

Currency Crises ◽

Inflation Targeting ◽

Foreign Currency ◽

Significant Risk ◽

Developed Countries ◽

High Level

The paper discusses dynamics of private sector debt-to-GDP ratio and debt service ratio (DSR). We show that the level of DSR for developing countries is less than that of DSR for developed countries, and has a more volatile dynamics. Developing countries face significant risk from external sector of the economy due to high level of their dependence on external debt - through currency revaluation, on the one hand, and reciprocal growth of interest rates, on the other hand. This is illustrated, for example, by the situation in Russia in 2014-2016. We also show that countries with monetary policy based on inflation targeting face much more downplayed response of DSR shocks on their economic activity than countries with different regimes of monetary policy. That is why currency crises in several regions including South-East Asia and Russia, have led to significant growth in DSR and forwarded shift to inflation targeting in these countries. Along with shocks of DSR related to volatility of foreign currency, we explore those related to inflation and monetary conditions, abrupt changes in economic activity, etc. The paper also focuses on factors of DSR dynamics, including interest rates, terms, volumes, foreign currency revaluation, and its decomposition on the long period of time.

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Evolving Monetary Policy Frameworks in Low-Income and Other Developing Countries — Background Paper — Country Experiences

Policy Papers ◽

10.5089/9781498344050.007 ◽

2015 ◽

Vol 15 ◽

Author(s):

Keyword(s):

Developing Countries ◽

Monetary Policy ◽

Low Income ◽

Currency Unions ◽

Policy Regimes ◽

Franc Zone ◽

Advanced Economies ◽

Policy Frameworks ◽

Modernization Process ◽

Rich Countries

This background paper focuses on the experiences of evolving monetary policy frameworks in nine individual countries and three thematic groupings of countries. The country case studies are complemented by analyses of common issues faced by countries in currency unions in the CFA franc zone, selected resource rich countries, and advanced economies and emerging markets during their modernization process of monetary policy regimes. Finally, the background paper also contains a discussion on the benefits of effective communication in conducting monetary policy.

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Lessons from the 20 years of the Brazilian inflation targeting regime

Panoeconomicus ◽

10.2298/pan1901001a ◽

2019 ◽

Vol 66 (1) ◽

pp. 1-23 ◽

Cited By ~ 1

Author(s):

Eliane Araújo ◽

Philip Arestis

Keyword(s):

Economic Growth ◽

Monetary Policy ◽

Interest Rates ◽

Inflation Targeting ◽

Price Control ◽

Current Debate ◽

Policy Objective ◽

Nominal Interest Rates ◽

Inflation Targets ◽

One Year

This paper analyzes the Brazilian experience with the inflation targeting regime (ITR) since its adoption in June 1999. The theoretical analysis starts by covering the New Consensus Macroeconomics (NCM) only policy, in which the ITR is the monetary policy recommendation. This discussion is then complemented first by the current debate in the international mainstream on the need for a flexible ITR that considers the effects of monetary policy on the economy and second by the heterodox discussion on the need to completely abandon the ITR. The discussion on the Brazilian experience and its comparison with international experiences show that Brazil is one of the few countries where the monetary policy objective is restricted to price control and where the horizon for returning inflation to the target is only one year. Within this institutional framework, the Brazilian economy under the ITR is marked by the maintenance of extremely high real and nominal interest rates and with difficulties in meeting the inflation targets. The price control obtained also did not generate the expected externalities in terms of economic growth and employment. After almost 20 years of adopting the ITR in Brazil, it has generated exaggerated contractionary pressures on the Brazilian economy, indicating the need for a thorough examination of monetary institutions in Brazil in order to resume economic growth with price stability and social equity.

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The influence of inflation targeting on the pass-through effect of the exchange rate

Voprosy Ekonomiki ◽

10.32609/0042-8736-2018-11-70-84 ◽

2018 ◽

pp. 70-84

Author(s):

Ph. S. Kartaev ◽

Yu. I. Yakimova

Keyword(s):

Developing Countries ◽

Monetary Policy ◽

Exchange Rate ◽

Inflation Targeting ◽

Policy Regime ◽

Short And Long Term ◽

The Exchange Rate ◽

Pass Through ◽

The Impact

The paper studies the impact of the transition to the inflation targeting regime on the magnitude of the pass-through effect of the exchange rate to prices. We analyze cross-country panel data on developed and developing countries. It is shown that the transition to this regime of monetary policy contributes to a significant reduction in both the short- and long-term pass-through effects. This decline is stronger in developing countries. We identify the main channels that ensure the influence of the monetary policy regime on the pass-through effect, and examine their performance. In addition, we analyze the data of time series for Russia. It was concluded that even there the transition to inflation targeting led to a decrease in the dependence of the level of inflation on fluctuations in the ruble exchange rate.

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Perspectives on inflation Targeting Regime in Russia

Voprosy Ekonomiki ◽

10.32609/0042-8736-2014-11-107-121 ◽

2014 ◽

pp. 107-121 ◽

Cited By ~ 1

Author(s):

S. Andryushin

Keyword(s):

Monetary Policy ◽

Financial Markets ◽

Interest Rates ◽

Inflation Targeting ◽

Short Term ◽

Indirect Control ◽

Financial Account ◽

Domestic Prices ◽

Macroeconomic Indicators ◽

Private And Public

The paper analyzes monetary policy of the Bank of Russia from 2008 to 2014. It presents the dynamics of macroeconomic indicators testifying to inability of the Bank of Russia to transit to inflation targeting regime. It is shown that the presence of short-term interest rates in the top borders of the percentage corridor does not allow to consider the key rate as a basic tool of monetary policy. The article justifies that stability of domestic prices is impossible with-out exchange rate stability. It is proved that to decrease excessive volatility on national consumer and financial markets it is reasonable to apply a policy of managing financial account, actively using for this purpose direct and indirect control tools for the cross-border flows of the private and public capital.

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Monetary policy regimes in Russia: Guidelines for furtherquantitative studies

Voprosy Ekonomiki ◽

10.32609/0042-8736-2017-4-38-60 ◽

2017 ◽

pp. 38-60 ◽

Cited By ~ 7

Author(s):

A. Pestova

Keyword(s):

Monetary Policy ◽

Exchange Rate ◽

Interest Rates ◽

Quantitative Research ◽

Policy Regimes ◽

Policy Effects ◽

Exchange Rate Targeting ◽

Basic Parameters

This paper analyzes the basic parameters of monetary policy in 2000-2015 in Russia. We provide the overview of tools and objectives of monetary policy of the Bank of Russia and identify the periods of homogeneity of monetary policy regimes: from money base targeting to exchange rate targeting and finally, to interest rates policy. On the basis of this research we develop the recommendations for further quantitative research aimed at estimation of monetary policy effects in Russia.

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Regular Econometric Model of Taylor for Albania

European Journal of Economics and Business Studies ◽

10.26417/ejes.v5i1.p123-133 ◽

2016 ◽

Vol 5 (1) ◽

pp. 123

Author(s):

Ergys Misha

Keyword(s):

Economic Growth ◽

Monetary Policy ◽

Interest Rates ◽

Financial Stability ◽

Inflation Targeting ◽

Inflation Rate ◽

Stock Exchange ◽

Central Banks ◽

Financial Assets

The Taylor’s Rule Central Banks is applying widely today from Central Banks for design the monetary policy and for determination of interest rates. The purpose of this paper is to assess monetary policy rule in Albania, in view of an inflation targeting regime. In the first version of the Model, the Taylor’s Rule assumes that base interest rate of the monetary policy varies depending on the change of (1) the inflation rate and (2) economic growth (Output Gap).Through this paper it is proposed changing the objective of the Bank of Albania by adding a new objective, that of "financial stability", along with the “price stability”. This means that it is necessary to reassess the Taylor’s Rule by modifying it with incorporation of indicators of financial stability. In the case of Albania, we consider that there is no regular market of financial assets in the absence of the Stock Exchange. For this reason, we will rely on the credit developmet - as a way to measure the financial cycle in the economy. In this case, the base rate of monetary policy will be changed throught: (1) Targeting Inflation Rate, (2) Nominal Targeting of Economic Growth, and (3) Targeting the Gap of the Ratio Credit/GDP (mitigating the boom cycle, if the gap is positive, and the contractiocycle if the gap is negative).The research data show that, it is necessary that the Bank of Albania should also include in its objective maintaining the financial stability. In this way, the contribution expected from the inclusion of credit gap indicators in Taylor’s Rule, will be higher and sustainable in time.

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