The Transmission Mechanism for Monetary Policy in Developing Countries

Peter Montiel

No 1990/047, IMF Working Papers from International Monetary Fund

Abstract: In many developing countries the financial system is characterized by the absence of organized markets for securities and equities, by capital controls, and by legal ceilings on bank borrowing and lending rates, a situation which gives rise to parallel markets for foreign exchange and informal loan markets. This paper analyzes how changes in monetary policy instruments (bank credit, administered interest rates, required reserve ratios, and intervention in the parallel exchange market) are transmitted to domestic aggregate demand in a financially-repressed economy. Such an analysis is necessary to understand how the move to a more market-oriented system would affect the economy in the short run.

Keywords: WP; interest rate; foreign exchange; monetary policy (search for similar items in EconPapers)
Pages: 30
Date: 1990-05-01
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Journal Article: The Transmission Mechanism for Monetary Policy in Developing Countries (1991)
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