IN DISCUSSING MONETARY MEASURES for demand management, two interrelated questions are usually raised: first, how to evaluate the impact of changes in monetary variables on aggregate demand and, second, which monetary variable is appropriate from the viewpoint of policy. 1 In examining these questions, but mainly the second, the paper concentrates on the choice between money and credit as the policy-controlled variable—that is, whether the authorities should act (place a ceiling) on credit or on money when they intend to regulate pressures on demand, and particularly pressures on the balance of payments. 2
Delineation of sectors and financial instruments in a matrix of balance sheets for an economy is central to specifying the BSA framework for analysis of the potential for emerging liquidity or solvency problems. The sectorization and financial instruments in the 7 x 7 matrix presented in this paper provide a useful baseline for applying the BSA and can be adapted to focus on particular sectors to assess vulnerabilities in the economy. This framework can also be modified to accommodate data limitations and still be useful for vulnerability analysis.
ABILITY TO DETERMINE the effect of changes in government policy variables on the balance of payments and income has been of major concern to policymakers in developing countries. A prerequisite to evaluating these effects is showing how income and the balance of payments are determined, since it is only then that a study can be made of the channels through which policy variables act. This paper presents a theoretical specification of a model considered relevant for analyzing the behavior of nominal income and the balance of payments in developing countries and tests the resulting model for a group of such countries. Since the model centers on the monetary aspects of income and balance of payments determination, it can be described essentially as a “monetary” model.1
Mr. Malcolm D. Knight, Arne B. Petersen, and Robert T. Price
For the past six years, the central banks of the Baltics, Russia, and other countries of the former Soviet Union have undertaken ambitious programs of reform.1 The reforms have focused first on stabilizing monetary policy and then on achieving a market-based determination of interest and exchange rates. The reform of central bank operating procedures has been a key piece of the program. Central banks in the 15 countries have been encouraged to manage banking liquidity through market operations with indirect instruments. There have also been closely coordinated reforms to foster foreign exchange markets, interbank money markets, government securities markets, and to strengthen various central bank functions, including the payment system, central bank accounting and internal audit, and banking supervision and restructuring. This volume examines the progress the 15 countries have made in transforming their financial systems, and highlights the substantial progress achieved by central banks in most of the countries.
THE PURPOSE OF THIS PAPER is to bring monetary events, monetary data, and monetary problems within the framework of income analysis, and thereby to bridge the gap between (1) the views widely held on the relation between financial policies and payments questions and (2) the analytical tools used to explain payments developments. Broadly, payments problems are associated with inflationary causes; and moderation in credit expansion is generally prescribed as a preventive or a curative of payments difficulties. But since existing analytical studies rarely succeed in integrating monetary and credit factors in the explanation of income or of payments developments, an adequate theoretical basis—in particular, a quantitative basis—for these conclusions seems to be lacking.
Mr. Robert T Price, Mr. Malcolm D. Knight, and Mr. Arne B. Petersen
The following tables provide a summary of the reforms in the key central banking areas for the Baltics, Russia, and other countries of the former Soviet Union. The tables start with the implementation of monetary policy—specifically, the institutional context in which the central bank operates and its short- and medium-term operating targets, markets and interest rate management, and instruments and operating arrangements. They then move on to developments in the foreign exchange area and priorities for future reform. Significant attention is devoted to banking supervision and bank restructuring—first, the institutional framework of the banking system is covered; then, the structure and performance of the banking system is summarized; and, finally, bank restructuring measures in the individual countries are listed. The chapter concludes with summaries of payment systems and central bank accounting reforms.