How Effective is Monetary Transmission in Low-Income Countries? A Survey of the Empirical Evidence

June 1, 2012

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 surveys the evidence on the effectiveness of monetary transmission in low-income countries. It is hard to come away from this review with much confidence in the strength of monetary transmission in such countries. We distinguish between the "facts on the ground" and "methodological deficiencies" interpretations of the absence of evidence for strong monetary transmission. We suspect that "facts on the ground" are an important part of the story. If this conjecture is correct, the stabilization challenge in developing countries is acute indeed, and identifying the means of enhancing the effectiveness of monetary policy in such countries is an important challenge.

Subject: Bank credit, Banking, Exchange rate arrangements, Exchange rates, Financial markets, Foreign exchange, Money, Securities markets, Stock markets

Keywords: aggregate demand, Bank credit, bank lending channel, banks, bond market, Central and Eastern Europe, Central Asia, central bank, developing countries, exchange rate, Exchange rate arrangements, Exchange rates, institutions, interest rate, lending rate, Middle East, monetary aggregate, monetary policy, nominal exchange rate, North Africa, price level, regime indicator, Securities markets, Stock markets, Sub-Saharan Africa, WP

Pages:
48
Volume:
2012
DOI:
https://doi.org/10.5089/9781475504064.001
Issue:
143
Series:
Working Paper No. 2012/143
Stock No:
WPIEA2012143
ISBN:
9781475504064
ISSN:
1018-5941

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