Munich Personal RePEc Archive

Procyclical Monetary Policy and Governance

Choudhary, M. Ali and Hanif, M. Nadim and Khan, Sajawal and Rehman, Muhammad (2010): Procyclical Monetary Policy and Governance.


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Weak governance adversely affects firm’s net worth and consequently the value of its collateral. This negative impact on the collateral reduces the external credit available for importing inputs constraining potential output. As a result, a stronger procyclical monetary policy stance is adopted for protecting the exchange rate and hence arresting the degradation in the collateral constraint.

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