How do countries choose their monetary policy frameworks?

David Cobham and Mengdi Song

Journal of Policy Modeling, 2020, vol. 42, issue 6, 1187-1207

Abstract: This paper investigates the determinants of countries’ choices of monetary policy framework. A brief narrative focused on groupings of countries motivates an econometric analysis which draws on previous work on the determinants of exchange rate regimes, bringing in standard factors as well as the trade networks of potential anchor currency blocs and the financial market depth that are emphasised in the narrative. The model turns out to be able to predict three quarters of countries’ choices, and there is no obvious systematic pattern in the errors. The results have important implications for how countries should choose their monetary policy frameworks.

Keywords: Monetary policy frameworks; Inflation targets; Exchange rate targets; Discretion; Trade networks; Financial market depth (search for similar items in EconPapers)
JEL-codes: E42 E52 E61 F40 (search for similar items in EconPapers)
Date: 2020
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (10)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:jpolmo:v:42:y:2020:i:6:p:1187-1207

DOI: 10.1016/j.jpolmod.2020.04.008

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