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Procyclical Monetary Policy and Governance

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  • Choudhary, M. Ali
  • Hanif, M. Nadim
  • Khan, Sajawal
  • Rehman, Muhammad

Abstract

Weak governance adversely affects firm’s net worth and consequently the value of its collateral. This negative impact on the collateral reduces the external credit available for importing inputs constraining potential output. As a result, a stronger procyclical monetary policy stance is adopted for protecting the exchange rate and hence arresting the degradation in the collateral constraint.

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Bibliographic Info

Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 27022.

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Date of creation: Nov 2010
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Handle: RePEc:pra:mprapa:27022

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Keywords: Collateral Constraints; Governance; Monetary Policy;

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References

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  1. Robert E. Hall & Charles I. Jones, 1999. "Why Do Some Countries Produce So Much More Output Per Worker Than Others?," The Quarterly Journal of Economics, MIT Press, vol. 114(1), pages 83-116, February.
  2. Frankel, Jeffrey, 2011. "Monetary Policy in Emerging Markets: A Survey," Working Paper Series rwp11-003, Harvard University, John F. Kennedy School of Government.
  3. Devereux, M.B. & Lane, P.R., 2002. "Understanding Bilateral Exchange Rate Volatility," CEG Working Papers 20025, Trinity College Dublin, Department of Economics.
  4. Robert J. Barro & Xavier Sala-i-Martin, 1990. "Public Finance in Models of Economic Growth," NBER Working Papers 3362, National Bureau of Economic Research, Inc.
  5. Diego A. Comin & Norman Loayza & Farooq Pasha & Luis Serven, 2009. "Medium Term Business Cycles in Developing Countries," Harvard Business School Working Papers 10-029, Harvard Business School, revised Sep 2010.
  6. Choudhary, M. Ali & Levine, Paul, 2006. "Idle worship," Economics Letters, Elsevier, vol. 90(1), pages 77-83, January.
  7. Huang, Haizhou & Wei, Shang-Jin, 2005. "Monetary Policies for Developing Countries: The Role of Institutional Quality," CEPR Discussion Papers 4911, C.E.P.R. Discussion Papers.
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Cited by:
  1. Ahmed, Waqas & Khan, Sajawal & Rehman, Muhammad, 2013. "Optimal Monetary Policy in the Presence of an Informal Sector and Firm-Level Credit Constraints," MPRA Paper 53169, University Library of Munich, Germany.
  2. Adnan Haider & Musleh ud Din & Ejaz Ghani, 2011. "Consequences of Political Instability, Governance and Bureaucratic Corruption on Inflation and Growth: The Case of Pakistan," The Pakistan Development Review, Pakistan Institute of Development Economics, vol. 50(4), pages 773-807.

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