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EVOLVING MONETARY POLICY FRAMEWORKS IN LOW-INCOME AND OTHER DEVELOPING COUNTRIES—BACKGROUND PAPER: COUNTRY EXPERIENCES
October 2015
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Evolving Monetary Policy Frameworks in Low-Income and Other Developing Countries
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Front Matter Page
EVOLVING MONETARY POLICY FRAMEWORKS IN LOW-INCOME AND OTHER DEVELOPING COUNTRIES— BACKGROUND PAPER: COUNTRY EXPERIENCES
October 23, 2015
Approved By
Siddharth Tiwari, Maurice Obstfeld, and José Viñals
Prepared by a staff team lead by Andrew Berg (RES), Catherine Pattillo (SPR), and Ghiath Shabsigh (MCM), with contributions from the following country teams: Albania, Algeria, Armenia, Ghana, India, Iran, Kenya, Kazakhstan, Nigeria, Peru, Rwanda, Uganda, Uruguay, and Yemen. Overall guidance was provided by Dong He (MCM), Seán Nolan (SPR), and Jonathan D. Ostry (RES).
This background paper focuses on the experiences of evolving monetary policy frameworks in nine individual countries and three thematic groupings of countries. The country case studies are complemented by analyses of common issues faced by countries in currency unions in the CFA franc zone, selected resource rich countries, and advanced economies and emerging markets during their modernization process of monetary policy regimes. Finally, the background paper also contains a discussion on the benefits of effective communication in conducting monetary policy.
Contents
ACRONYMS AND ABBREVIATIONS
COUNTRY CASE STUDIES
A. Albania
B. Armenia
C. Ghana
D. India
E. Kenya
F. Peru—Financial Dollarization and Price Stability
G. Rwanda
H. Uganda
I. Uruguay
OTHER EXPERIENCES WITH MONETARY POLICY
A. The Experience of Advanced and Emerging Market Economies During the Modernization Process of Monetary Policy Regimes
B. Monetary Policy in Selected sub-Saharan African Currency Unions
C. Monetary Policy in Resource-rich Countries: Selected Case Studies
D. Benefits of Effective Communications
BOXES
1. Developing the Capacity to Control Money Market Benchmark Rates
2. Building Analytical Capacities
3. Sequencing with Capital Account Liberalization
4. Experience of Israel with FX Interventions During 2008–2014
FIGURES
1. Albania—Selected Economic Indicators
2. Armenia—Fiscal and Monetary Conditions, 2004–2014
3. Ghana—Macroeconomic Indicators
4. Ghana—Interest Rates
5. Kenya—Policy Rate, Exchange Rate and Inflation
6. Kenya-Commercial Bank Excess Reserves
7. Kenya—Government Access to Overdraft Facility and Central Government Deposit at the CBK
8. Kenya—Evolution of Inflation
9. Kenya—Policy Rate and Interbank Rate
10. Inflation in Developing Economies 2005–2014
11. Rwanda—Evolution of Key Monetary Indicators
12. Uganda—Historical Shock Decomposition of Headline Inflation
13. Uruguay—Inflation Target Range and Expectations
14. Uruguay—Real Exchange Rates
15. Uruguay—Financial and Current Account Balance
16. Uruguay—M1 + Growth Reference Ranges and Outturns
17. Uruguay—Market Interest Rates
18. Inflation and Growth Performance
19. Swings in Inflation and Growth
20. Average CPI Inflation in IT and Non-IT Countries January 2006–June 2008
21. IT Countries Actual versus Targeted Inflation, June 2008
22. Changes in Log Real Effective Exchange Rates (REER) for IT and Non-IT Countries, since January 2006
23. Median Monthly Annualized Inflation for IT and Non-IT Countries; and Real Policy Rates for IT and Non-IT Countries
24. Median Unemployment for IT and non-IT Countries; and Median GDP Growth Rate since 2001:Q1 for IT and Non IT Countries
25. Nigeria—Selected Economic Indicators
TABLES
1. Kenya—Monetary Policy Framework
2. Uganda—Key Features of the Monetary Targeting and IT
3. Uganda—Variance Between Current and Past Inflation Rates
4. Inflation Outcomes in African Currency Unions and Other Economies 1991–2014
REFERENCES
Acronyms and Abbreviations
| AM |
Advanced Markets |
| BCEAU |
Central Bank of West African States |
| BCU |
Central Bank of Uruguay |
| BE AC |
Bank of Central African States |
| BoA |
Bank of Albania |
| BoG |
Bank of Ghana |
| BOI |
Bank of Israel |
| BOU |
Bank of Uganda |
| CBA |
Central Bank of Armenia |
| CBK |
Central Bank of Kenya |
| CBN |
Central Bank of Nigeria |
| CBR |
Central Bank Rate |
| CEMAC |
Economic and Monetary Community of Central Africa |
| CFA franc zone |
Communauté Financière d’Afrique |
| CRR |
Cash Reserve Ratio |
| ECB |
European Central Bank |
| ECF |
Extended Credity Facility |
| EFF |
Extended Fund Facility |
| EM |
Emerging Markets |
| FPAS |
Forecasting and Policy Analysis System |
| FSAP |
Financial Sector Assessment Program |
| FX |
Foreign Exchange |
| GIR |
Gross International Reserves |
| LLMICs |
Low- and Lower-middle Income Countries |
| MCM, RES, SPR |
IMF’s Monetary and Capital Markets; Research; Strategy, Policy, and Review Departments respectively |
| MPC |
Monetary Policy Committee |
| MPR |
Monetary Policy Rate |
| NBR |
National Bank of Rwanda |
| NDA |
Net Domestic Assets |
| NEER |
Nominal Effective Exchange Rate |
| NFA |
Net Foreign Assets |
| OMO |
Open Market Operations |
| OTC |
Over-the-counter |
| RBI |
Reserve Bank of India |
| REER |
Real Effective Exchange Rate |
| SLR |
Statutory Liquidity Ratio |
| SME |
Small and Medium Enterprises |
| SSA |
Sub-Saharan Africa |
| TA |
Technical Assistance |
| VAR |
Vector Autoregression |
| WAEMU |
West Africa Economic and Monetary Union |