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Monetary policy instruments for developing countries

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  • Caprio, Gerard
  • Honohan, Patrick

Abstract

In developing countries, the evolution of financial markets and growing disenchantment with directed credit programs and bank-by-bank credit ceilings have increased the interest in examining and moving to indirect methods of implementing monetary policy. The authors provide an overview of the policy issues developing countries face in light of industrial country experience in the last two decades. They discuss the objectives of monetary policy and how these have evolved in recent years, and they describe the different policy instruments that have become available to monetary authorities and how these instruments can be used to cope with the main shocks affecting monetary policy : government deficit financing and those related to external flows. Shifting from direct ways of controlling monetary policy is not universally appealing. Direct controls are simple to operate and seem to offer a sure handle on overall credit or money growth. Moving away from direct controls often involves a fundamental reorientation of central bankers and government officials, not only toward directed credit but toward the financing of government debt. Not every country is in a position to immediately apply the experience gained by industrial countries in operating indirect methods of monetary control. However, more and more monetary authorities can be expected to follow the lead taken especially by several Asian economies.

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Bibliographic Info

Paper provided by The World Bank in its series Policy Research Working Paper Series with number 528.

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Date of creation: 31 Oct 1990
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Handle: RePEc:wbk:wbrwps:528

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Related research

Keywords: Macroeconomic Management; Economic Stabilization; Economic Theory&Research; Financial Intermediation; Banks&Banking Reform;

References

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  1. Alfred Broaddus, 1985. "Financial innovation in the United States -- background, current and prospects," Working Paper 85-02, Federal Reserve Bank of Richmond.
  2. Goodhart, Charles, 1989. "The Conduct of Monetary Policy," Economic Journal, Royal Economic Society, vol. 99(396), pages 293-346, June.
  3. Nouriel Roubini, 1988. "Offset and Sterilization Under Fixed Exchange Rates With An Optimizing Central Bank," NBER Working Papers 2777, National Bureau of Economic Research, Inc.
  4. Alfred Broaddus, 1985. "Financial innovation in the United States - background, current status and prospects," Economic Review, Federal Reserve Bank of Richmond, issue Jan, pages 2-22.
  5. Ben Bernanke, 1988. "Monetary policy transmission: through money or credit?," Business Review, Federal Reserve Bank of Philadelphia, issue Nov, pages 3-11.
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Cited by:
  1. Epstein, Gerald A., 2006. "Central Banks as Agents of Economic Development," Working Paper Series RP2006/54, World Institute for Development Economic Research (UNU-WIDER).
  2. Pardy, Robert, 1992. "Institutional reform in emerging securities markets," Policy Research Working Paper Series 907, The World Bank.
  3. Caprio, Gerard, 1992. "Policy uncertainty, information asymmetries, and financial intermediation," Policy Research Working Paper Series 853, The World Bank.
  4. Gerald Epstein, 2005. "Central Banks as Agents of Economic Development," Working Papers wp104, Political Economy Research Institute, University of Massachusetts at Amherst.

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