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Financial Infusion and Exiting from a Money Rule

Author

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  • Mr. Mark R. Stone

Abstract

Money demand often surges after successful macroeconomic stabilization. This paper gives a name—financial infusion—to these surges because their size, unpredictability, and concurrence with other “success shocks” pose unique challenges to policy, especially under a money rule. An examination of 26 stabilization episodes shows that money to GDP can be expected to decline before stabilization and rise sharply thereafter. Analysis of the policy response to financial infusion under a money rule concludes that it amplifies output and price volatility, even if built into the rule. Finally, the main elements of an exit strategy from a money rule to an exchange rate or inflation target are discussed.

Suggested Citation

  • Mr. Mark R. Stone, 1998. "Financial Infusion and Exiting from a Money Rule," IMF Working Papers 1998/031, International Monetary Fund.
    • Handle: RePEc:imf:imfwpa:1998/031
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    Cited by:

    1. Bayangos, V.B., 2000. "real monetary conditions index for the Philippines : is it useful?," ISS Working Papers - General Series 19054, International Institute of Social Studies of Erasmus University Rotterdam (ISS), The Hague.
    2. Matovnikov Mikhail, 2003. "The ups and downs of banking system in transition," EERC Working Paper Series 99-244e, EERC Research Network, Russia and CIS.
    3. Mariam El Hamiani Khatat, 2018. "Monetary Policy and Models of Currency Demand," IMF Working Papers 2018/028, International Monetary Fund.

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