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Re-Establishing Credible Nominal Anchors After a Financial Crisis

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Author Info

  • Alessandro Zanello
  • Mark R. Stone
  • Christopher J. Jarvis
  • Andrew Berg

Abstract

This paper studies the question of how to achieve monetary policy credibility and price stability after a financial crisis. We draw stylized facts and conclusions from ten recent cases: Brazil (1999); Bulgaria (1997); Ecuador (2000); Indonesia (1997); Korea (1997); Malaysia (1997); Mexico (1994), Russia (1998); Thailand (1997); and Turkey (2001). Among our conclusions, highlights include: (i) monetary policy alone cannot stabilize; (ii) floats bring nominal stability quickly in countries with low pre-crisis inflation and hard pegs have been at least narrowly successful for countries in deeper disarray; (iii) in floats, early and determined tightening brings nominal stability and does not appear more costly for output; (iv) monetary aggregate targeting rarely serves as a coherent framework for floats; informal or full-fledged inflation targeting offers more promise.

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Bibliographic Info

Paper provided by International Monetary Fund in its series IMF Working Papers with number 03/76.

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Length: 45
Date of creation: 01 Apr 2003
Date of revision:
Handle: RePEc:imf:imfwpa:03/76

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Related research

Keywords: Floating exchange rates; Exchange rate regimes; inflation; monetary policy; foreign exchange; central bank; inflation targeting; monetary fund; open market operations; money demand; monetary aggregate; monetary policy framework; high inflation; monetary aggregates; price stability; real interest rates; post-crisis period; high interest rates; inflation target; average inflation; inflation objective; real value; money supply; money base; monetary base; reserve requirements; foreign currency; government securities; monetary authorities; inflationary pressures; nominal interest rates; monetary impact; money market; tight monetary policy; monetary policy implementation; loose monetary policy; price level; inflation forecasts; monetary control; domestic money markets; discount rate; monetary targets; stable prices; official reserves; monetary conditions; real exchange rates; monetary stance; monetary policy strategy; financial stability; real rates; inflationary impact; monetary aggregate target; nominal interest rate; deflationary effect; money markets; monetary policy frameworks; annual inflation; increase in interest rates; contractionary monetary policy; money market interest rate;

References

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Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
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  1. Richard Hemming & Axel Schimmelpfennig & Michael Kell, 2003. "Fiscal Vulnerability and Financial Crises in Emerging Market Economies," IMF Occasional Papers 218, International Monetary Fund.
  2. Sebastian Edwards & Miguel A. Savastano, 1998. "The Morning After: The Mexican Peso in the Aftermath of the 1994 Currency Crisis," NBER Working Papers 6516, National Bureau of Economic Research, Inc.
  3. Leonardo Hernández & Peter J. Montiel, 2002. "Post-crisis exchange rate policy in five Asian countries: filling in the "hollow middle"?," Pacific Basin Working Paper Series 2002-07, Federal Reserve Bank of San Francisco.
  4. Yougesh Khatri & Il Houng Lee & O. Liu & Kanitta Meesook & Natalia T. Tamirisa, 2001. "Malaysia," IMF Occasional Papers 207, International Monetary Fund.
  5. Reinhart, Carmen & Rogoff, Kenneth, 2004. "The modern history of exchange rate arrangements: A reinterpretation," MPRA Paper 14070, University Library of Munich, Germany.
  6. Lawrence J. Christiano & Christopher Gust & Jorge Roldos, 2002. "Monetary Policy in a Financial Crisis," NBER Working Papers 9005, National Bureau of Economic Research, Inc.
  7. Agustín G. Cartens & Alejandro M. Werner, 2000. "Mexico's Monetary Policy Framework Under a Floating Exchange Rate Regime," Money Affairs, Centro de Estudios Monetarios Latinoamericanos, vol. 0(2), pages 113-165, July-Dece.
  8. Leslie Teo & Charles Enoch & Carl-Johan Lindgren & Tomás J. T. Baliño & Anne Marie Gulde & Marc Quintyn, 2000. "Financial Sector Crisis and Restructuring," IMF Occasional Papers 188, International Monetary Fund.
  9. Boorman, Jack & Lane, Timothy & Schulze-Ghattas, Marianne & Bulir, Ales & Ghosh, Atish R. & Hamann, Javier & Mourmouras, Alex & Phillips, Steven, 2000. "Managing financial crises: the experience in East Asia," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 53(1), pages 1-67, December.
  10. Leonardo Hernández & Peter Montiel, 2001. "Post-Crisis Exchange Rate Policy in Five Asian Countries," IMF Working Papers 01/170, International Monetary Fund.
  11. Frederic S. Mishkin, 2000. "Inflation Targeting in Emerging-Market Countries," American Economic Review, American Economic Association, vol. 90(2), pages 105-109, May.
  12. Ilan Goldfajn & Poonam Gupta, 1999. "Does Monetary Policy Stabilize the Exchange Rate Following a Currency Crisis?," IMF Working Papers 99/42, International Monetary Fund.
  13. Dalia Hakura & Ehsan U. Choudhri, 2001. "Exchange Rate Pass-Through to Domestic Prices," IMF Working Papers 01/194, International Monetary Fund.
  14. Marc Zelmer & Andrea Schaechter & Mark R. Stone & Alina Carare, 2002. "Establishing Initial Conditions in Support of Inflation Targeting," IMF Working Papers 02/102, International Monetary Fund.
  15. Miguel A. Savastano & Paul R. Masson & Sunil Sharma, 1997. "The Scope for Inflation Targeting in Developing Countries," IMF Working Papers 97/130, International Monetary Fund.
  16. Timothy D. Lane & A. Javier Hamann & Marianne Schulze-Gattas & Ales Bulir & Steven Phillips & Atish R. Ghosh & Alex Mourmouras & Jack Boorman, 2000. "Managing Financial Crises," IMF Working Papers 00/107, International Monetary Fund.
  17. Honohan, Patrick & Shi, Anging, 2001. "Deposit dollarization and the financial sector in emerging economies," Policy Research Working Paper Series 2748, The World Bank.
  18. Timothy D. Lane & Marianne Schulze-Gattas & T. M. Tsikata & Steven Phillips & Atish R. Ghosh & A. Javier Hamann, 1999. "IMF-Supported Programs in Indonesia, Korea and Thailand," IMF Occasional Papers 178, International Monetary Fund.
  19. International Monetary Fund, 2002. "Banking Crises and Bank Resolution," IMF Working Papers 02/56, International Monetary Fund.
  20. Ales Bulir & Marianne Schulze-Gattas & Atish R. Ghosh & Alex Mourmouras & A. Javier Hamann & Timothy D. Lane, 2002. "IMF-Supported Programs in Capital Account Crises," IMF Occasional Papers 210, International Monetary Fund.
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Citations

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Cited by:
  1. Siwei Goo & Reza Siregar, 2009. "Economic Shocks And Exchange Rate As A Shock Absorber In Indonesia And Thailand," Staff Papers, South East Asian Central Banks (SEACEN) Research and Training Centre, number sp72, June.
  2. Douglas Laxton & Andrew Berg & Philippe D Karam, 2006. "A Practical Model-Based Approach to Monetary Policy Analysis: Overview," IMF Working Papers 06/80, International Monetary Fund.

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