This report on Adopting Inflation Targeting describes the trade-offs raised in the formulation of an inflation targeting framework and states the approaches to these trade-offs used by inflation targeting countries. The inherent differences discussed in this report between the six emerging market inflation targeting countries—Brazil, Chile, the Czech Republic, Israel, Poland, and South Africa—and other emerging market countries may shed some light on the preferred starting point and conditions for inflation targeting. Most central banks in emerging market countries have taken important organizational steps to enhance their capacity to apply greater judgment and foster transparency and accountability. These steps can be particularly challenging for emerging market central banks that have traditionally operated with controls and regulations and have been reluctant to communicate their policy intentions and economic outlooks. During the transition to full-fledged inflation targeting, several emerging market countries have confronted the challenge of dis-inflating to the long-run inflation objective.
Mr. Tomás J. T. Baliño, Mr. Charles Enoch, and Mr. William E. Alexander
This paper examines the experience of implementing indirect instruments of monetary policy. The experiences of country studies illustrate the variety of circumstances under which indirect instruments of monetary policy have been introduced. Case Studies are presented for Chile, Egypt, Ghana, Indonesia, Mexico, New Zealand, and Poland.
Mr. Jose Martelino, Mr. S. Nuri Erbas, Mr. Adnan Mazarei, Ms. Sena Eken, and Mr. Paul Cashin
This paper provides background information on the Lebanese economy, based on an analysis of the economic consequences of war, and discusses several issues that will be central to Lebanon's prospects for recovery
This study examines the challenges and issues facing policymakers in highly dollarized economies. Focusing on Cambodia, which achieved almost complete dollarization during 1991-95, the authors review recent developments in the literature on dollarization and examine the costs and benefits of dollarization in Cambodia, including the ensuing macroeconomic policy implications. They carry out an econometric estimation of cash foreign currency circulation in Cambodia in order to gauge the degree of dollarization. In addition to this analysis, the authors present a short description of Cambodia’s economic, financial, and structural background.
This paper reviews economic stabilization and growth in Portugal during the 1970s. Following a decade of rapid growth with external equilibrium, the Portuguese economy in the early 1970s suffered a series of major shocks. The paper highlights that the problem of managing economic growth with a balance-of-payments constraint was new to Portugal. The paper reviews the issues that had to be resolved to develop an effective program. The economic outturn is also critically examined in this paper.
This study examines the financial reforms undertaken by nine Asian countries in the 1980s (Indonesia, Korea, Malaysia, Myanmar, Nepal, the Philippines, Singapore, Sri Lanka, and Thailand) and their implications for money demand and monetary policy.
Ms. Anne Marie Gulde, Mr. David S. Hoelscher, Mr. Alain Ize, Mr. Dewitt D Marston, and Mr. Gianni De Nicolo
This paper addresses the challenges to prudential supervision in highly dollarized economies, where central banks and supervisors may be constrained in the use of standard money and financial policy tools. The study’s conclusions are the basis of an ongoing policy dialogue with IMF member countries, standard-setters in the financial area, and academia. The paper is part of the policy development work conducted by the IMF’s Monetary and Financial Systems Department.
In recent years, emerging market countries have joined industrial countries in adopting monetary policy frameworks of formal inflation targeting. Motivated by increased demand by emerging market countries for IMF technical assistance on inflation targeting, this paper examines the institutional and operational practicalities of inflation targeting for emerging market countries adopting this regime. The paper spells out the trade-offs raised in the formulation of an inflation targeting framework and describes the approaches to these trade-offs used by inflation targeting countries.
Anna Nordstrom, Mr. Scott Roger, Mr. Mark R. Stone, Seiichi Shimizu, Turgut Kisinbay, and Jorge Restrepo
The exchange rate plays a more important role in monetary policy for emerging economies that have adopted inflation targeting than for their advanced economy counterparts. Inflation-targeting emerging economies generally have less flexible exchange rate arrangements and intervene more frequently in the foreign exchange market. The enhanced role of the exchange rate reflects these economies’ greater vulnerability to exchange rate shocks and their less developed financial markets. However, their sharper focus on the exchange rate may cause some confusion about the commitment of their central banks to the inflation target and may also complicate policy implementation. These tensions were heightened by the inflation pressures, greater exchange rate volatility, and financial stress arising from the global financial turmoil that began in mid-2007 and the subsequent economic crisis.
Following a decade of rapid growth with external equilibrium the Portuguese economy in the early 1970s suffered a series of major shocks. Even before the Revolution of April 1974 the increase in world petroleum prices had sharply raised the import bill and, by deepening the recession elsewhere, would soon reduce export earnings and emigrants’ remittances from abroad. The independence of the former colonies in Africa meant a loss of privileged markets and brought a major return of settlers to Portugal. Domestically, the Revolution achieved a substantial redistribution of income in favor of workers both in factories and on farms. Although the rate of economic growth slowed down, it now generated external deficits too large to be sustainable.