Re-Establishing Credible Nominal Anchors After a Financial Crisis: A Review of Recent Experience

By Alessandro Zanello, Mark R. Stone, Christopher J. Jarvis, Andrew Berg

April 1, 2003

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Alessandro Zanello, Mark R. Stone, Christopher J. Jarvis, and Andrew Berg. Re-Establishing Credible Nominal Anchors After a Financial Crisis: A Review of Recent Experience, (USA: International Monetary Fund, 2003) accessed September 19, 2024

Disclaimer: This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate

Summary

This paper studies the question of how to achieve monetary policy credibility and price stability after a financial crisis. We draw stylized facts and conclusions from ten recent cases: Brazil (1999); Bulgaria (1997); Ecuador (2000); Indonesia (1997); Korea (1997); Malaysia (1997); Mexico (1994), Russia (1998); Thailand (1997); and Turkey (2001). Among our conclusions, highlights include: (i) monetary policy alone cannot stabilize; (ii) floats bring nominal stability quickly in countries with low pre-crisis inflation and hard pegs have been at least narrowly successful for countries in deeper disarray; (iii) in floats, early and determined tightening brings nominal stability and does not appear more costly for output; (iv) monetary aggregate targeting rarely serves as a coherent framework for floats; informal or full-fledged inflation targeting offers more promise.

Subject: Conventional peg, Exchange rate arrangements, Exchange rates, Floating exchange rates, Foreign exchange, Inflation, Prices

Keywords: Aftermath, Conventional peg, Country, Exchange rate, Exchange rate arrangements, Exchange rate depreciation, Exchange rates, Financial crisis, Floating exchange rates, Government, Inflation, Limit inflation pass-through, Monetary policy, Monetary policy action, Monetary policy credibility, Monetary policy execution, Monetary policy response, Nominal anchor, Nominal stability, Sound monetary policy, WP

Publication Details

Pages:

45
Volume:

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DOI:

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Issue:

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Series:

Working Paper No. 2003/076
Stock No:

WPIEA0762003
ISBN:

9781451849899
ISSN:

1018-5941

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