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The Transmission Mechanism for Monetary Policy in Developing Countries

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  • Peter J Montiel

Abstract

In many developing countries the financial system is characterized by the absence of organized markets for securities and equities, by capital controls, and by legal ceilings on bank borrowing and lending rates, a situation which gives rise to parallel markets for foreign exchange and informal loan markets. This paper analyzes how changes in monetary policy instruments (bank credit, administered interest rates, required reserve ratios, and intervention in the parallel exchange market) are transmitted to domestic aggregate demand in a financially-repressed economy. Such an analysis is necessary to understand how the move to a more market-oriented system would affect the economy in the short run.

Suggested Citation

  • Peter J Montiel, 1990. "The Transmission Mechanism for Monetary Policy in Developing Countries," IMF Working Papers 90/47, International Monetary Fund.
  • Handle: RePEc:imf:imfwpa:90/47
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    Cited by:

    1. José J. Sidaoui & Manuel Ramos-Francia, 2008. "The monetary transmission mechanism in Mexico: recent developments," BIS Papers chapters,in: Bank for International Settlements (ed.), Transmission mechanisms for monetary policy in emerging market economies, volume 35, pages 363-394 Bank for International Settlements.
    2. Isard, Peter & Mathieson, Donald J. & Rojas-Suarez, Liliana, 1996. "A framework for the analysis of financial reforms and the cost of official safety nets," Journal of Development Economics, Elsevier, vol. 50(1), pages 25-79, June.
    3. Akhand Akhtar Hossain, 2009. "Central Banking and Monetary Policy in the Asia-Pacific," Books, Edward Elgar Publishing, number 12777, April.
    4. Jose Sanchez-fung, 2005. "Estimating a monetary policy reaction function for the dominican republic," International Economic Journal, Taylor & Francis Journals, vol. 19(4), pages 563-577.
    5. Al-Mashat Rania & Billmeier Andreas, 2008. "The Monetary Transmission Mechanism in Egypt," Review of Middle East Economics and Finance, De Gruyter, pages 32-82.
    6. Sánchez-Fung, José R., 2008. "The day-to-day interbank market, volatility, and central bank intervention in a developing economy," MPRA Paper 15648, University Library of Munich, Germany.
    7. Gustavo Junca, 2006. "Modelo De Zonas Objetivo Para La Tasa De Interés De Corto Plazo," REVISTA CUADERNOS DE ECONOMÍA, UN - RCE - CID, December.
    8. Simatele, Munacinga C H, 2004. "Financial sector reforms and monetary policy reforms in Zambia," MPRA Paper 21575, University Library of Munich, Germany.
    9. Sanchez-Fung Jose R., 2003. "Monetary Policy Reaction Dynamics In A Developing Economy: Evidence For The Dominican Republic," Applied Econometrics and International Development, Euro-American Association of Economic Development, vol. 3(1).
    10. International Monetary Fund, 1991. "Financial Sector Reforms and Monetary Policy," IMF Working Papers 91/127, International Monetary Fund.

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