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

Policy Papers ◽

10.5089/9781498344067.007 ◽

2015 ◽

Vol 15 ◽

Author(s):

Keyword(s):

Monetary Policy ◽

Low Income ◽

Global Financial Crisis ◽

Middle Income ◽

Global Capital ◽

Middle Income Countries ◽

Advanced Economies ◽

Policy Frameworks ◽

Modernization Process ◽

The Global Financial Crisis

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.

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Conditionality in Evolving Monetary Policy Regimes

Policy Papers ◽

10.5089/9781498343695.007 ◽

2014 ◽

Vol 2014 (24) ◽

Cited By ~ 2

Author(s):

Keyword(s):

Developing Countries ◽

Monetary Policy ◽

Interest Rates ◽

Money Demand ◽

Inflation Targeting ◽

Financial Deepening ◽

Single Digit ◽

Policy Regimes ◽

Policy Frameworks ◽

Inflation Targets

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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Monetary Policy in Sub-Saharan Africa

10.1093/oso/9780198785811.001.0001 ◽

2018 ◽

Cited By ~ 1

Keyword(s):

Monetary Policy ◽

Low Income ◽

Sub Saharan Africa ◽

Low Income Countries ◽

African Countries ◽

Policy Regimes ◽

Export Prices ◽

Policy Work ◽

Sub Saharan ◽

Policy Guidance

Having broadly stabilized inflation over the past two decades, many policymakers in sub-Saharan Africa are now asking more of their monetary policy frameworks. They are looking to avoid policy misalignments and respond appropriately to both domestic and external shocks, including swings in fiscal policy and spikes in food and export prices. In many cases they are finding current regimes—often characterized as ‘money targeting’—lacking, with opaque and sometimes inconsistent objectives, inadequate transmission of policy to the economy, and difficulties in responding to supply shocks. At the same time, little existing research on monetary policy is targeted to low-income countries. What do we know about the empirics of monetary transmission in low-income countries? (How) Does monetary policy work in countries characterized by a huge share of food in consumption, underdeveloped financial markets, and opaque policy regimes? (How) Can we use methods largely derived in advanced countries to answer these questions? And (how) can we use the results to guide policymakers? This book draws on years of research and practice at the IMF and in central banks from the region to shed empirical and theoretical light on these questions and to provide practical tools and policy guidance. A key feature of the book is the application of dynamic general equilibrium models, suitably adapted to reflect key features of low-income countries, for the analysis of monetary policy in sub-Saharan African countries.

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Do Monetary Policy Frameworks Matter in Low Income Countries?

IMF Working Papers ◽

10.5089/9781513550671.001 ◽

2020 ◽

Vol 2020 (139) ◽

pp. 1

Author(s):

Alina Carare ◽

Carlos de Resende ◽

Andrew Levin ◽

Chelsea Zhang

Keyword(s):

Monetary Policy ◽

Low Income ◽

Low Income Countries ◽

Policy Frameworks

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Monetary Policy and the Future of Central Banking

50 Years of Central Banking in Kenya ◽

10.1093/oso/9780198851820.003.0002 ◽

2021 ◽

pp. 9-14

Author(s):

Mitsuhiro Furusawa

Keyword(s):

Monetary Policy ◽

World War Ii ◽

Interest Rates ◽

Global Economy ◽

Commodity Prices ◽

Central Banking ◽

African Countries ◽

Advanced Economies ◽

Policy Frameworks ◽

Forward Looking

The chapter highlights the state of monetary policy in Africa and explores the challenges that central banks face as they address the increasingly complex forces at work in the global economy. It sequences the evolution of monetary policy from the time of World War II under the Bretton Woods system to the more recent forward-looking monetary policy in advanced economies and relates it to influencing the evolution of monetary policy frameworks in Africa. Some challenges affecting African countries are identified, including the collapse of commodity prices, persistent high interest rates spreads, and limitations of high frequency data that constrain monetary authorities’ abilities to take corrective actions in a timely manner. The chapter concludes by providing seven principles towards increasing the effectiveness of monetary policy for countries seeking to move towards forward-looking monetary policy frameworks.

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Implementation Errors and Incomplete Information

10.1093/oso/9780198785811.003.0009 ◽

2018 ◽

Cited By ~ 1

Author(s):

Rafael Portillo ◽

Filiz Unsal ◽

Stephen O’Connell ◽

Catherine Pattillo

Keyword(s):

Monetary Policy ◽

Interest Rates ◽

Incomplete Information ◽

Low Income ◽

Complete Information ◽

Structural Features ◽

New Keynesian ◽

Low Income Countries ◽

Keynesian Model ◽

Policy Frameworks

This chapter shows that limited effects of monetary policy can reflect shortcomings of existing policy frameworks in low-income countries rather than (or in addition to) the structural features often put forward in policy and academic debates. The chapter focuses on two pervasive issues: lack of effective frameworks for implementing policy, so that short-term interest rates display considerable unintended volatility, and poor communication about policy intent. The authors introduce these features into an otherwise standard New Keynesian model with incomplete information. Implementation errors result from insufficient accommodation to money demand shocks, creating a noisy wedge between actual and intended interest rates. The representative private agent must then infer policy intentions from movements in interest rates and money. Under these conditions, even exogenous and persistent changes in the stance of monetary policy can have weak effects, even when the underlying transmission (as might be observed under complete information) is strong.

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Book Reviews

Journal of Economic Literature ◽

10.1257/jel.55.1.209.r5 ◽

2017 ◽

Vol 55 (1) ◽

pp. 222-225

Keyword(s):

Monetary Policy ◽

Low Income ◽

Central Banks ◽

Low Income Countries ◽

Balance Sheets ◽

Flow Of Funds ◽

Monetary Analysis ◽

Policy Frameworks ◽

Bank Of England

Bilin Neyapti of Bilkent University reviews “Monetary Analysis at Central Banks,” edited by David Cobham. The Econlit abstract of this book begins: “Four papers investigate how analysis of monetary and credit aggregates is used in modern central banks and how that analysis feeds through into policy making. Papers discuss monetary analysis and central banks (David Cobham); the analysis of money and credit during the financial crisis--the approach at the Bank of England (Jon Bridges, James Cloyne, Ryland Thomas, and Alex Tuckett); central banks as balance sheets of last resort--the European Central Bank's monetary policy in a flow-of-funds perspective (Philippine Cour-Thimann and Bernhard Winkler); and evolving monetary policy frameworks in low-income countries--the Tanzanian experience (Christopher Adam, Pantaleo Kessy, and Ben Langford).”

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