Choose an application

• Reference Manager
• EndNote
• RefWorks (Direct export to RefWorks)

Inflation targeting (IT) is a relatively new monetary policy framework for low-income countries (LICs). The limited number of LICs with an IT framework and the short time that has elapsed since the adoption of this framework explains why there are no previous empirical studies on the performance of IT in LICs. This paper has made a first attempt at filling this gap. It finds that inflation targeting appears to be associated with lower inflation and inflation volatility. At the same time, there is no robust evidence of an adverse impact on output. This may explain the appeal of IT for many LICs, where building credibility of monetary policy is difficult and minimizing output costs of reducing inflation is imperative for social and political reasons.

Inflation targeting --- Targeting, Inflation --- Monetary policy --- Econometric models. --- Finance: General --- Inflation --- Money and Monetary Policy --- Price Level --- Deflation --- Monetary Policy --- Central Banks and Their Policies --- General Financial Markets: General (includes Measurement and Data) --- Monetary economics --- Macroeconomics --- Finance --- Emerging and frontier financial markets --- Monetary transmission mechanism --- Monetary policy frameworks --- Prices --- Financial markets --- Financial services industry --- Ghana

Choose an application

• Reference Manager
• EndNote
• RefWorks (Direct export to RefWorks)

This paper outlines important lessons for monetary policy. In particular, the role of inflation targeting, which was much acclaimed prior to the financial crisis and since then has not lost much of its endorsement, is critically reviewed. Ignoring the relation between monetary policy and asset prices, as is the case in this monetary policy approach, can lead to financial instability. In contrast, giving, inter alia, monetary factors a role in central banks’ policy decisions, as is done in the ECB’s encompassing approach, helps prevent these potentially harmful side effects and thus allows for fostering financial stability. Finally, this paper makes a case against increasing the central banks’ inflation target.

Monetary policy. --- Inflation targeting. --- Securities --- Targeting, Inflation --- Monetary policy --- Monetary management --- Economic policy --- Currency boards --- Money supply --- Prices. --- Banks and Banking --- Inflation --- Macroeconomics --- Money and Monetary Policy --- Price Level --- Deflation --- Monetary Policy --- Banks --- Depository Institutions --- Micro Finance Institutions --- Mortgages --- Monetary economics --- Banking --- Asset prices --- Inflation targeting --- Price stabilization --- Prices --- Banks and banking --- Government policy --- United Kingdom

Choose an application

• Reference Manager
• EndNote
• RefWorks (Direct export to RefWorks)

Several Central American (CADR) countries with independent monetary policies are strengthening their monetary frameworks and some have implemented or are moving towards inflation targeting (IT) regimes. Strengthening the monetary policy frameworks of CADR is key to improving the effectiveness of monetary policy. The paper reviews the literature on the reforms needed for strengthening the monetary policy frameworks, and examines the experiences of IT countries, Chile, Peru, and Uruguay to help distill lessons for CADR. It also constructs an index to measure the relative strength of the monetary policy framework of CADR countries.

Banks and Banking --- Foreign Exchange --- Inflation --- Money and Monetary Policy --- Macroeconomics --- Monetary Policy, Central Banking, and the Supply of Money and Credit: General --- Monetary Policy --- Central Banks and Their Policies --- Banks --- Depository Institutions --- Micro Finance Institutions --- Mortgages --- Price Level --- Deflation --- Monetary economics --- Banking --- Currency --- Foreign exchange --- Monetary policy frameworks --- Exchange rate flexibility --- Central bank autonomy --- Monetary policy --- Prices --- Central banks --- Price stabilization --- Banks and banking --- Costa Rica

Choose an application

• Reference Manager
• EndNote
• RefWorks (Direct export to RefWorks)

Over the past decade, Cambodia has become Asia’s most dollarized economy. In contrast, dollarization in neighboring Lao P.D.R., Mongolia, and Vietnam has been either declining or broadly stable. Somewhat paradoxically, growing dollarization in Cambodia has occurred against the backdrop of greater macroeconomic and political stability. The usual motive, currency substitution, does not appear to have been a factor. As the volume of dollars increased over the years, so has the volume of riel. A strong inward flow of dollars related to garments sector exports, tourism receipts, foreign direct investment, and aid, has benefitted the dollar based urban economy. The riel based rural economy has, however, lagged behind. Given international experience in de-dollarization, a carefully managed market based strategy, supported by a continued stable macroeconomic environment is essential for Cambodia’s de-dollarization.

Dollarization --- Monetary policy --- Banks and Banking --- Money and Monetary Policy --- Monetary Systems --- Standards --- Regimes --- Government and the Monetary System --- Payment Systems --- Banks --- Depository Institutions --- Micro Finance Institutions --- Mortgages --- Monetary Policy --- Monetary economics --- Banking --- Currencies --- Bank deposits --- International reserves --- De-dollarization --- Money --- Banks and banking --- Foreign exchange reserves --- Cambodia

Choose an application

• Reference Manager
• EndNote
• RefWorks (Direct export to RefWorks)

Several Central American (CADR) central banks with independent monetary policies have adopted policy interest rates as their main instrument to signal their monetary policy stances, often in the context of adopting or transitioning to inflation targeting regimes. This paper finds that the interest-rate transmission mechanism, or the pass-through of the policy rate to market rates, is generally weaker and slower in CADR than in the LA6, the countries selected as benchmarks. A variety of potential factors behind this finding are examined, including the degrees of financial dollarization, exchange rate flexibility, bank concentration, financial sector development, and fiscal dominance. Through panel data analysis, the study suggests that the transmission mechanism can be strengthened by increasing exchange rate flexibility, and, over time, by adopting measures towards reducing financial dollarization, developing the financial sector, and reducing bank concentration.

Central America --- Economic conditions. --- Banks and Banking --- Foreign Exchange --- Money and Monetary Policy --- Monetary Systems --- Standards --- Regimes --- Government and the Monetary System --- Payment Systems --- Interest Rates: Determination, Term Structure, and Effects --- Monetary Policy --- Banks --- Depository Institutions --- Micro Finance Institutions --- Mortgages --- Monetary Policy, Central Banking, and the Supply of Money and Credit: General --- Banking --- Currency --- Foreign exchange --- Finance --- Monetary economics --- Central bank policy rate --- Exchange rate flexibility --- Deposit rates --- Bank credit --- Financial services --- Inflation targeting --- Monetary policy --- Monetary policy frameworks --- Interest rates --- Banks and banking --- Credit --- Costa Rica