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How Effective is Monetary Transmission in Low-Income Countries? A Survey of the Empirical Evidence

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  • Prachi Mishra
  • Peter J Montiel

Abstract

This paper surveys the evidence on the effectiveness of monetary transmission in low-income countries. It is hard to come away from this review with much confidence in the strength of monetary transmission in such countries. We distinguish between the "facts on the ground" and "methodological deficiencies" interpretations of the absence of evidence for strong monetary transmission. We suspect that "facts on the ground" are an important part of the story. If this conjecture is correct, the stabilization challenge in developing countries is acute indeed, and identifying the means of enhancing the effectiveness of monetary policy in such countries is an important challenge.

Suggested Citation

  • Prachi Mishra & Peter J Montiel, 2012. "How Effective is Monetary Transmission in Low-Income Countries? A Survey of the Empirical Evidence," IMF Working Papers 12/143, International Monetary Fund.
  • Handle: RePEc:imf:imfwpa:12/143
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    More about this item

    Keywords

    Cross country analysis; Caribbean; Eastern Europe; Developing countries; Monetary policy; Banks; Asia and Pacific; Latin America; Low-income developing countries; Monetary transmission mechanism; North Africa; Middle East and Central Asia; Transition economies; Sub-Saharan Africa; exchange rate; interest rate; institutions; monetary transmission; aggregate demand; central bank; price level; Effective Is Monetary Transmission; Macroeconomic Analyses of Economic Development;

    JEL classification:

    • E5 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit
    • O11 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Macroeconomic Analyses of Economic Development
    • O16 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Financial Markets; Saving and Capital Investment; Corporate Finance and Governance

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