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

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  • Selim Elekdag
  • Nabil Ben Ltaifa
  • Todd Schneider
  • Saade Chami

Abstract

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.

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Bibliographic Info

Paper provided by International Monetary Fund in its series IMF Working Papers with number 07/6.

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Length: 28
Date of creation: 01 Jan 2007
Date of revision:
Handle: RePEc:imf:imfwpa:07/6

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Keywords: Inflation targeting; Developing countries; Exchange rates; Prices; inflation; monetary policy; central bank; money demand; monetary policy framework; inflation objective; monetary policy rule; price stability; inflation rate; monetary aggregates; monetary economics; monetary fund; monetary policy rules; inflation forecasts; monetary authorities; money supply; foreign exchange; inflation target; aggregate demand; inflationary expectations; open market operations; money balances; real money; money growth; price level; low inflation; inflationary pressures; monetary framework; rate of inflation; monetary transmission; government securities; monetary transmission mechanism; monetary policies; inflation rates; monetary growth; inflation data; rates of inflation; reserve requirements; monetary policy decisions; monetary policy instruments; monetary conditions; actual inflation; monetary policy regime; reserve requirement; effective exchange rates; inflation targeting framework; monetary policy strategy; macroeconomic performance; independent monetary policy; liquidity management; monetary economy; inflation targeting regime; monetary stability; alternative monetary policy framework;

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