Procyclical Monetary Policy and Governance
Ali Choudhary (),
Muhammad Hanif (),
Sajawal Khan () and
MPRA Paper from University Library of Munich, Germany
Weak governance adversely affects firm’s net worth and consequently the value of its collateral. This negative impact on the collateral reduces the external credit available for importing inputs constraining potential output. As a result, a stronger procyclical monetary policy stance is adopted for protecting the exchange rate and hence arresting the degradation in the collateral constraint.
Keywords: Collateral Constraints; Governance; Monetary Policy (search for similar items in EconPapers)
JEL-codes: F4 O1 E5 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-mac and nep-mon
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