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The transition strategy from administratively set interest rates to market rates is discussed. Despite worldwide trends toward financial liberalization, few monetary authorities are prepared to accept as reasonable any interest rate level that is market determined. The paper suggests some helpful indicators to assess the adequacy of interest rates and discusses factors that contribute to a smooth liberalization process. The main conclusion is that interest rate liberalization is not synonymous with laissez-faire policies, but requires the replacement of the administratively set interest rates by indirect monetary management techniques that operate through the market.

Abstract

The transition strategy from administratively set interest rates to market rates is discussed. Despite worldwide trends toward financial liberalization, few monetary authorities are prepared to accept as reasonable any interest rate level that is market determined. The paper suggests some helpful indicators to assess the adequacy of interest rates and discusses factors that contribute to a smooth liberalization process. The main conclusion is that interest rate liberalization is not synonymous with laissez-faire policies, but requires the replacement of the administratively set interest rates by indirect monetary management techniques that operate through the market.

Volume 37 (1990) comprises four issues, as follows:

  • March, pages 1–194

  • June, pages 195–452

  • September, pages 453–734

  • December, pages 735–906.

Authors

  • Adams, Charles, and David T. Coe. A Systems Approach to Estimating Natural Rate of Unemployment and Potential Output for the United States 232

  • Agenor, Pierre-Richard. Stabilization Policies in Developing Countries with a Parallel Market for Foreign Exchange: A Formal Framework 560

  • Amirkhalkhali, Saleh, and Atul A. Dar, Current Account Imbalances and Capital Formation in Industrial Countries: Comment on Penati and Dooley 726

  • Bayoumi, Tamim. Saving-Investment Correlations: Immobile Capital, Government Policy, or Endogenous Behavior? 360

  • Bhandari, Jagdeep S., and Carlos A. Végh. Dual Exchange Markets Under Incomplete Separation: An Optimizing Model 146

  • Bhandari, Jagdeep S., Nadeem U. Haque, and Stephen J. Turnovsky. Growth, External Debt, and Sovereign Risk in a Small Open Economy 388

  • Borensztein, Eduardo, and George Pennacchi. Valuation of Interest Payment Guarantees on Developing Country Debt 806

  • Bovenberg, A. Lans, and Owen Evans. National and Personal Saving in the United States: Measurement and Analysis of Recent Trends 636

  • Calvo, Guillermo A., and Pablo E. Guidotti. Credibility and Nominal Debt: Exploring the Role of Maturity in Managing Inflation 612

  • Calvo, Guillermo A., and Carlos A. Végh. Interest Rate Policy in a Small Open Economy: The Predetermined Exchange Rates Case 753

  • Chadha, Bankim. Real Exchange Rate and Output Variability: The Role of Sticky Prices 593

  • Coe, David T. Structural Determinants of the Natural Rate of Unemployment in Canada 94

  • Coe, David T., and Charles Adams. A Systems Approach to Estimating the Natural Rate of Unemployment and Potential Output for the United States 232

  • Corker, Robert. Wealth, Financial Liberalization, and the Demand for Money in Japan 418

  • Cornelius, Peter K. Monetary Indexation and Revenues from Money Creation: The Case of Iceland 825

  • Cottarelli, Carlo, and Mauro Mecagni, The Risk Premium on Italian Government Debt, 1976–88 865

  • Dar, Atul A., and Saleh Amirkhalkhali. Current Account Imbalances and Capital Formation in Developing Countries: Comment on Penati and Dooley 726

  • Demekas, Dimitri G. Labor Market Segmentation in a Two-Sector Model of an Open Economy 849

  • Evans, Owen, and A. Lans Bovenberg. National and Personal Saving in the United States: Measurement and Analysis of Recent Trends... 636 Findlay, David W. Expectations and Long-Term Interest Rates: Comment on Bovenberg 433

  • Findlay, David W. Budget Deficits and Interest Rates: Reply to Spiro 889

  • Flood, Robert P., and Peter Isard. Monetary Policy Strategies—A Correction: Reply to Lohmann 446

  • Guidotti, Pablo E., and Carlos A. Végh. Optimal Taxation Policies in the EMS: A Two-Country Model of Public Finance 311

  • Guidotti, Pablo E., and Guillermo A. Calvo. Credibility and Nominal

  • Debt: Exploring the Role of Maturity in Managing Inflation 612

  • Haque, Nadeem U., Jagdeep S. Bhandari, and Stephen J. Turnovsky, Growth, External Debt, and Sovereign Risk in a Small Open Economy 388

  • Haque, Nadeem U., Kajal Lahiri, and Peter J. Montiel. A Macroeconometric Model for Developing Countries 537

  • Holzmann, Robert. The Welfare Effects of Public Expenditure Programs Reconsidered 338

  • Isard, Peter, and Robert P. Flood. Monetary Policy Strategies—A Correction: Reply to Lohmann 446

  • Kaminsky, Graciela, and Manmohan S. Kumar. Efficiency in Commodity Futures Markets 670

  • Khan, Mohsin S. The Macroeconomic Effects of Fund-Supported Adjustment Programs 195

  • Khan, Mohsin S., and Peter J. Montiel. A Marriage Between Fund and Bank Models? Reply to Polak 187

  • Kremers, Jeroen J.M. Gaining Policy Credibility for a Disinflation: Ireland’s Experience in the EMS 116

  • Kremers, Jeroen J.M., and Timothy D. Lane. Economic and Monetary Integration and the Aggregate Demand for Money in the EMS.... 777

  • Kumar, Manmohan S., and Graciela Kaminsky. Efficiency in Commodity Futures Markets 670

  • Lahiri, Kajal, Nadeem U. Haque, and Peter J. Montiel, A Macroeconometric Model for Developing Countries 537

  • Lane, Timothy D., and Jeroen J.M. Kremers. Economic and Monetary Integration and the Aggregate Demand for Money in the EMS.... 777

  • Lehmussaari, Olli-Pekka. Deregulation and Consumption: Saving Dynamics in the Nordic Countries 71

  • Leite, Sérgio Pereira, and V. Sundararajan. Issues in Interest Rate Management 735

  • Lohmann, Susanne. Monetary Policy Strategies—A Correction: Comment on Flood and Isard 440

  • Masson, Paul R., and Ralph W. Tryon. Macroeconomic Effects of Projected Population Aging in Industrial Countries 453

  • Mecagni, Mauro, and Carlo Cottarelli. The Risk Premium on Italian Government Debt, 1976–88 865

  • Mirakhor, Abbas, and Delano Villanueva. Strategies for Financial Reforms: Interest Rate Policies, Stabilization, and Bank Supervision in Developing Countries 509

  • Montiel, Peter J., and Mohsin S. Khan. A Marriage Between Fund and Bank Models? Reply to Polak 187

  • Montiel, Peter J., Nadeem U. Haque, and Kajal Lahiri, A Macroeconometric Model for Developing Countries 537

  • Ohno, Kenichi. Exchange Rate Fluctuations, Pass-Through, and Market Share 294

  • Ohno, Kenichi. Estimating Yen/Dollar and Mark/Dollar Purchasing Power Parities 700

  • Pennacchi, George, and Eduardo Borensztein. Valuation of Interest Payment Guarantees on Developing Countries 806

  • Polak, Jacques J. A Marriage Between Fund and Bank Models? Comment on Khan and Montiel 183

  • Reinhart, Carmen M. A Model of Adjustment and Growth: An Empirical Analysis 168

  • Sahay, Ratna. Trade Policy and Excess Capacity in Developing Countries 486

  • Smith, Roger S. Factors Affecting Saving, Policy Tools, and Tax Reform: A Review 1

  • Spiro, Peter S. The Effect of Government Debt on Short-Term Real Interest Rates: Comment on Findlay 881

  • Sundararajan, V., and Sérgio Pereira Leite. Issues in Interest Rate Management 735

  • Tryon, Ralph W., and Paul R. Masson. Macroeconomic Effects of Projected Population Aging in Industrial Countries 453

  • Turnovsky, Stephen J., Jagdeep S. Bhandari, and Nadeem U. Haque. Growth, External Debt, and Sovereign Risk in a Small Open Economy 388

  • Végh, Carlos A., and Jagdeep S. Bhandari. Dual Exchange Markets Under Incomplete Separation: An Optimizing Model 146

  • Végh, Carlos A., and Pablo E. Guidotti. Optimal Taxation Policies in the EMS: A Two-Country Model of Public Finance 311

  • Végh, Carlos A., and Guillermo A. Calvo. Interest Rate Policy in a Small Open Economy: The Predetermined Exchange Rates Case 753

  • Villanueva, Delano, and Abbas Mirakhor. Strategies for Financial Reforms: Interest Rate Policies, Stabilization, and Bank Supervision in Developing Countries 509

Titles

  • Budget Deficits and Interest Rates: Reply to Spiro. By David W. Findlay 889

  • Credibility and Nominal Debt: Exploring the Role of Maturity in Managing Inflation. By Guillermo A, Calvo and Pablo E. Guidotti 612

  • Current Account Imbalances and Capital Formation in Industrial Countries: Comment on Penati and Dooley. By Atul A. Dar and Saleh Amirkhalkhali 726

  • Deregulation and Consumption: Saving Dynamics in the Nordic Countries. By Olli-Pekka Lehmussaari 71

  • Dual Exchange Markets Under Incomplete Separation: An Optimizing Model. By Jagdeep S. Bhandari and Carlos A. Végh 146

  • Economic and Monetary Integration and the Aggregate Demand for Money in the EMS. By Jeroen J.M. Kremers and Timothy D. Lane 777

  • The Effect of Government Debt on Short-Term Real Interest Rates: Comment on Findlay. By Peter S. Spiro 881

  • Efficiency in Commodity Futures Markets. By Graciela Kaminsky and Manmohan S. Kumar 670

  • Estimating Yen/Dollar and Mark/Dollar Purchasing Power Parities. By Kenichi Ohno 700

  • Exchange Rate Fluctuations, Pass-Through, and Market Share. By Kenichi Ohno 294

  • Expectations and Long-Term Interest Rates: Comment on Bovenberg. By David W, Findlay 433

  • Factors Affecting Saving, Policy Tools, and Tax Reforms: A Review. By Roger S. Smith 1

  • Gaining Policy Credibility for a Disinflation: Ireland’s Experience in the EMS. By Jeroen J.M. Kremers 116

  • Growth, External Debt, and Sovereign Risk in a Small Open Economy. By Jagdeep S. Bhandari, Nadeem U. Haque, and Stephen J. Turnovsky 388

  • Interest Rate Policy in a Small Open Economy: The Predetermined Exchange Rates Case. By Guillermo A. Calvo and Carlos A. Végh 753

  • Issues in Interest Rate Management. By Sérgio Pereira Leite and V. Sundararajan 735

  • Labor Market Segmentation in a Two-Sector Model of an Open Economy. By Dimitri G. Demekas 849

  • A Macroeconometrie Model for Developing Countries. By Nadeem U. Haque, Kajal Lahiri, and Peter J. Montiel 537

  • A Marriage Between Fund and Bank Models? Comment on Khan and Montiel. By Jacques J. Polak 183

  • A Marriage Between Fund and Bank Models? Reply to Polak. By Mohsin S. Khan and Peter J. Montiel 187

  • The Macroeconomic Effects of Fund-Supported Programs. By Mohsin S. Khan 195

  • Macroeconomic Effects of Projected Population Aging in Industrial Countries. By Paul R. Masson and Ralph W. Tryon 453

  • A Model of Adjustment and Growth: An Empirical Analysis. By Carmen M. Reinhart 168

  • Monetary Indexation and Revenues from Money Creation: The Case of Iceland. By Peter K. Cornelius 825

  • Monetary Policy Strategies—A Correction: Comment on Flood and Isard, By Susanne Lohmann 440

  • Monetary Policy Strategies—A Correction: Reply to Lohmann. By Robert P. Flood and Peter Isard 446

  • National and Personal Saving in the United States: Measurement and Analysis of Recent Trends. By A. Lans Bovenberg and Owen Evans 636

  • Optimal Taxation Policies in the EMS: A Two-Country Model of Public Finance. By Carlos A. Végh and Pablo E. Guidotti 311

  • Real Exchange Rate and Output Variability: The Role of Sticky Prices. By Bankim Chadha 593

  • The Risk Premium on Italian Government Debt, 1976–88. By Carlo Cottarelli and Mauro Mecagni 865

  • Saving-Investment Correlations: Immobile Capital, Government Policy, or Endogenous Behavior? By Tamim Bayoumi 360

  • Stabilization Policies in Developing Countries with a Parallel Market for Foreign Exchange: A Formal Framework. By Pierre-Richard Agenor 560

  • Strategies for Financial Reforms: Interest Rate Policies, Stabilization, and Bank Supervision in Developing Countries. By Delano Villanueva and Abbas Mirakhor 509

  • Structural Determinants of the Natural Rate of Unemployment in Canada. By David T. Coe 94

  • A Systems Approach to Estimating the Natural Rate of Unemployment and Potential Output for the United States. By Charles Adams and David T. Coe 232

  • Trade Policy and Excess Capacity in Developing Countries. By Ratna Sahay 486

  • Valuation of Interest Payment Guarantees on Developing Country Debt. By Eduardo Borensztein and George Pennacchi 806

  • The Welfare Effects of Public Expenditure Programs Reconsidered. By

  • Robert Holzmann 338

  • Wealth, Financial Liberalization, and the Demand for Money in Japan. By Robert Corker 418

Subjects

To facilitate electronic storage and retrieval of bibliographic data, Staff Papers has adopted the subject classification scheme of the Journal of Economic Literature (Nashville, Tennessee).

023 Macroeconomic Theory

  • Deregulation and Consumption: Saving Dynamics in the Nordic Countries. By Olli-Pekka Lehmussaari 71

  • Growth, External Debt, and Sovereign Risk in a Small Open Economy. By Jagdeep S. Bhandari, Nadeem U. Haque, and Stephen J. Turnovsky 388

  • Real Exchange Rate and Output Variability: The Role of Sticky Prices. By Bankim Chadha 593

  • National and Personal Saving in the United States: Measurement and Analysis of Recent Trends. By A. Lans Bovenberg and Owen Evans 636

024 Welfare Theory

  • The Welfare Effects of Public Expenditure Programs Reconsidered. By Robert Holzmann 338

110 Economic Growth; Development; Planning Theory and Policy

  • A Systems Approach to Estimating the Natural Rate of Unemployment and Potential Output for the United States. By Charles Adams and David T. Coe 232

113 Economic Planning Theory and Policy

  • A Model of Adjustment and Growth: An Empirical Analysis. By Carmen M. Reinhart 168

121 Economic Studies of Developing Countries

  • A Model of Adjustment and Growth: An Empirical Analysis. By Carmen M. Reinhart 168

  • Growth, External Debt, and Sovereign Risk in a Small Open Economy. By Jagdeep S. Bhandari, Nadeem U. Haque, and Stephen J. Turnovsky 388

  • Strategies for Financial Reforms: Interest Rate Policies, Stabilization, and Bank Supervision in Developing Countries. By Delano Villanueva and Abbas Mirakhor 509

122 Economic Studies of Developed Countries

  • Monetary Indexation and Revenues from Money Creation: The Case of Iceland. By Peter K. Cornelius 825

130 Economic Fluctuations; Forecasting; Stabilization; Inflation

  • A Systems Approach to Estimating the Natural Rate of Unemployment and Potential Output for the United States. By Charles Adams and David T. Coe 232

  • Efficiency in Commodity Futures Markets. By Graciela Kaminsky and Manmohan S. Kumar 670

131 Economic Fluctuations

  • A Maeroeconometrie Model for Developing Countries. By Nadeem U. Haque, Kajal Lahiri, and Peter J. Montiel 537

  • Stabilization Policies in Developing Countries with a Parallel Market for Foreign Exchange: A Formal Framework. By Pierre-Richard Agénor 560

133 General Outlook and Stabilization Theories and Policies

  • The Macroeconomic Effects of Fund-Supported Programs. By Mohsin S. Khan 195

211 Econometric and Statistical Methods and Models

  • Efficiency in Commodity Futures Markets. By Graciela Kaminsky and Manmohan S. Kumar 670

212 Construction, Analysis, and Use of Econometric Models

  • The Macroeconomic Effects of Fund-Supported Programs. By Mohsin S. Khan 195

  • Estimating Yen/Dollar and Mark/Dollar Purchasing Power Panties. By Kenichi Ohno 700

220 Economic and Social Statistical Data and Analysis

  • Factors Affecting Saving, Policy Tools, and Tax Reforms: A Review. By Roger S. Smith 1

223 Financial Accounts

  • Wealth, Financial Liberalization, and the Demand for Money in Japan. By Robert Corker 418

224 National Wealth and Balance Sheets

  • Macroeconomic Effects of Projected Population Aging in Industrial Countries. By Paul R. Masson and Ralph W. Tryon 453

227 Prices

  • Estimating Yen/Dollar and Mark/Dollar Purchasing Power Parities. By Kenichi Ohno 700

311 Domestic Monetary and Financial Theory and Policy

  • Gaining Policy Credibility for a Disinflation: Ireland’s Experience in the EMS. By Jeroen J.M. Kremers 116

  • Growth, External Debt, and Sovereign Risk in a Small Open Economy. By Jagdeep S. Bhandari, Nadeem U. Haque, and Stephen J. Turnovsky 388

  • Strategies for Financial Reforms: Interest Rate Policies, Stabilization, and Bank Supervision in Developing Countries. By Delano Villanueva and Abbas Mirakhor 509

  • Issues in Interest Rate Management. By Sérgio Pereira Leite and V. Sundararajan 735

  • Economic and Monetary Integration and the Aggregate Demand for Money in the EMS. By Jeroen J.M. Kremers and Timothy D. Lane 777

  • Monetary Indexation and Revenues from Money Creation: The Case of Iceland. By Peter K. Cornelius 825

  • The Risk Premium on Italian Government Debt, 1976–88. By Carlo Cottarelli and Mauro Mecagni 865

313 Capital Markets

  • The Risk Premium on Italian Government Debt, 1976–88. By Carlo Cottarelli and Mauro Mecagni 865

320 Fiscal Theory and Policy; Public Finance

  • Optimal Taxation Policies in the EMS: A Two-Country Model of Public Finance, By Carlos A. Végh and Pablo E. Guidotti.... 311

  • Credibility and Nominal Debt: Exploring the Role of Maturity in Managing Inflation. By Guillermo A. Calvo and Pablo E, Guidotti 612

321 Fiscal Theory and Policy

  • Factors Affecting Saving, Policy Tools, and Tax Reforms: A Survey. By Roger S. Smith 1

  • The Welfare Effects of Public Expenditure Programs Reconsidered. By Robert Holzmann 338

  • National and Personal Saving in the United States: Measurement and Analysis of Recent Trends. By A. Lans Bovenberg and Owen Evans 636

  • The Risk Premium on Italian Government Debt, 1976–88. By Carlo Cottarelli and Mauro Mecagni 865

323 National Taxation, Revenue, and Subsidies

  • Factors Affecting Saving, Policy Tools, and Tax Reforms: A Survey. By Roger S. Smith 1

400 International Economics

  • Real Exchange Rate and Output Variability: The Role of Sticky

  • Prices. By Bankim Chadha 593

411 International Trade Theory

  • Exchange Rate Fluctuations, Pass-Through, and Market Shares. By Kenichi Ohno 294

  • Trade Policy and Excess Capacity in Developing Countries. By Ratna Sahay 486

  • Labor Market Segmentation in a Two-Sector Model of an Open Economy. By Dimitri G. Demekas 849

421 Trade Relations

  • Macroeconomic Effects of Projected Population Aging in Industrial Countries. By Paul R. Masson and Ralph W. Tryon 453

422 Commercial Policy

  • Trade Policy and Excess Capacity in Developing Countries. By Ratna Sahay 486

423 Economic Integration

  • Saving-Investment Correlations: Immobile Capital, Government Policy, or Endogenous Behavior? By Tamim Bayoumi 360

  • Economic and Monetary Integration and the Aggregate Demand for Money in the EMS. By Jeroen J.M. Kremers and Timothy D. Lane 777

430 International Finance

  • Optimal Taxation Policies in the EMS: A Two-Country Model of Public Finance. By Carlos A. Végh and Pablo E. Guidotti 311

431 Open Economy Macroeconomics; Exchange Rates

  • Gaining Policy Credibility for a Disinflation: Ireland’s Experience in the EMS. By Jeroen J.M. Kremers 116

  • Dual Exchange Markets Under Incomplete Separation: An Optimizing Model. By Jagdeep S. Bhandari and Carlos A. Végh 146

  • Exchange Rate Fluctuations, Pass-Through, and Market Shares. By Kenichi Ohno 294

  • Growth, External Debt, and Sovereign Risk in a Small Open Economy. By Jagdeep S. Bhandari, Nadeem U. Haque, and Stephen J. Turnovsky 388

  • A Macroeconometric Model for Developing Countries. By Nadeem U. Haque, Kajal Lahiri, and Peter J. Montiel 537

  • Stabilization Policies in Developing Countries with a Parallel Market for Foreign Exchange: A Formal Framework. By Pierre-Richard Agénor 560

  • Real Exchange Rate and Output Variability: The Role of Sticky Prices. By Bankim Chadha 593

  • Estimating Yen/Dollar and Mark/Dollar Purchasing Power Parities. By Kenichi Ohno 700

  • Interest Rate Policy in a Small Open Economy: The Predetermined Exchange Rates Case, By Guillermo A. Calvo and Carlos A. Végh 753

432 International Monetary Arrangements

  • Dual Exchange Markets Under Incomplete Separation: An Optimizing Model. By Jagdeep S. Bhandari and Carlos A. Végh 146

433 Private International Lending

  • Saving-Investment Correlations: Immobile Capital, Government

  • Policy, or Endogenous Behavior? By Tamim Bayoumi 360

  • Valuation of Interest Payment Guarantees on Developing Country Debt. By Eduardo Borensztein and George Pennacchi 806

441 International Investment and Long-Term Capital Movements

  • Saving-Investment Correlations: Immobile Capital, Government Policy, or Endogenous Behavior? By Tamim Bayoumi 360

521 Business Finance

  • Valuation of Interest Payment Guarantees on Developing Country Debt. By Eduardo Borensztein and George Pennacchi 806

611 Market Structure: Industrial Organization and Corporate Strategy

  • Exchange Rate Fluctuations, Pass-Through, and Market Share. By Kenichi Ohno 294

820 Labor Markets: Public Policy

  • A Systems Approach to Estimating the Natural Rate of Unemployment and Potential Output for the United States. By Charles Adams and David T. Coe 232

822 Public Policy; Role of Government

  • Structural Determinants of the Natural Rate of Unemployment in Canada. By David T. Coe 94

824 Labor Market Studies, Wages, Employment

  • Structural Determinants of the Natural Rate of Unemployment in Canada. By David T. Coe 94

832 Collective Bargaining

  • Labor Market Segmentation in a Two-Sector Model of an Open Economy. By Dimitri G. Demekas 849

840 Demographic Economics

  • Macroeconomic Effects of Projected Population Aging in Industrial Countries. By Paul R. Masson and Ralph W, Tryon 453

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