A New Taxonomy of Monetary Regimes
IMF Working Papers, October 1, 2004
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- A New Taxonomy of Monetary Regimes
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Bibliographic details
- Authors: Ashok Bhundia, Mark R. Stone
- Published: October 1, 2004
- Series: IMF Working Papers
- DOI: https://doi.org/10.5089/9781451859744.001
Overview
- This paper proposes a new taxonomy of monetary regimes defined by the choice and clarity of the nominal anchor.
- The taxonomy "captures the commitment-discretion tradeoffs that lie at the heart of choosing a monetary regime."
- During the last 15 years the world has moved toward monetary regimes with less discretion.
- Empirical analysis suggests that country regime choices reflect the level of financial and economic development and recent inflation history.
Proposed Taxonomy (regimes listed in the paper)
- (i) monetary nonautonomy
- (ii) weak anchor
- (iii) money anchor
- (iv) exchange rate peg
- (v) full-fledged inflation targeting
- (vi) implicit price stability anchor
- (vii) inflation targeting lite
Key Findings
- The taxonomy is defined by the choice and clarity of the nominal anchor.
- The taxonomy captures the commitment-discretion tradeoffs inherent in choosing a monetary regime.
- Over the last 15 years, there has been a global shift toward regimes with less discretion.
- Country regime choices are correlated with:
- the level of financial development,
- the level of economic development,
- recent inflation history.
Empirical Analysis (summary)
- Empirical analysis in the paper links regime choices to observable country characteristics, specifically financial and economic development indicators and recent inflation history.
- The analysis supports the view that regime selection is not uniform across countries but reflects these development and historical-inflation conditions.