Procyclical Monetary Policy and Governance

Ali Choudhary (), Muhammad Nadim Hanif (), Sajawal Khan () and Muhammad Rehman

MPRA Paper from University Library of Munich, Germany

Abstract: 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
Date: 2010-11
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