A comprehensive classification of monetary policy frameworks for advanced and emerging economies

Cobham, David (2018): A comprehensive classification of monetary policy frameworks for advanced and emerging economies.

Abstract

The paper presents a new classification of monetary policy frameworks which it applies to ‘advanced’ and 'emerging' economies for the period since the end of the Bretton Woods international monetary system. The classification is multi-dimensional, in particular while the main focus is on the monetary authorities' objectives and account is taken of both pre-announced targets and actual performance, it also emphasises the development of the underlying monetary and financial infrastructure which conditions the instruments available to the monetary authorities and therefore the coherence of different policy frameworks. It is based in large part on information obtained from a close reading of the monetary policy elements of IMF Article IV consultations. The two major changes which can be seen in the data are the swing over time in these countries towards a heavier focus on inflation, and the trend towards more systematic and coherent monetary arrangements which are typically associated with lower inflation and better, or at least not lower, economic growth. The classification, which will eventually be extended to cover developing countries as well, should enable researchers in the future to address a number of questions about comparative economic performance in a more nuanced way than has so far been possible.

• Item Type: MPRA Paper
• Language: English
• Keywords: monetary policy framework, monetary targeting, exchange rate targeting, inflation targeting
• Subjects: E - Macroeconomics and Monetary Economics > E4 - Money and Interest Rates > E42 - Monetary Systems ; Standards ; Regimes ; Government and the Monetary System ; Payment Systems; E - Macroeconomics and Monetary Economics > E5 - Monetary Policy, Central Banking, and the Supply of Money and Credit > E52 - Monetary Policy; F - International Economics > F3 - International Finance > F33 - International Monetary Arrangements and Institutions

References

Adam, C., and Cobham, D. (2007), ‘Exchange rate regimes and trade’, Manchester School, 75(s1): 44-63

Bailliu, J., Lafrance, R., and Perrault, J-F. (2003), ‘Does exchange rate policy matter for growth?’, International Finance, 6(3): 381-414

Ball, L. (2010), ‘The performance of alternative monetary regimes’, in B. Friedman and M. Woodford (eds), Handbook of Monetary Economics, North Holland, volume 3; also NBER working paper no 16124

Bank of Israel (2007), Inflation Targeting Revisited, available at http://www.boi.org.il/en/Research/Pages/papers_paper13e.aspx.

Barkai, H., and Liviatan, N. (2007), The Bank of Israel, volume 1, A Monetary History, New York: Oxford University Press

Bernanke, B., and Mihov, I. (1997), ‘What does the Bundesbank target?’ European Economic Review, 41(6), 1025-1053

Beyer, A., Gaspar, V., Gerberding, C., and Issing, O. (2009), ‘Opting out of the Great Inflation: German monetary policy after the breakdown of Bretton Woods’, ECB working paper no. 1020

Boughzala, M., and Cobham, D. (2011), ‘Introduction’, in M. Boughzala and D. Cobham (eds), Inflation Targeting in MENA Countries: An Unfinished Journey, Palgrave Macmillan

Calvo, G., and Mishkin, F. (2003), ‘The Mirage of Exchange Rate Regimes for Emerging Market Countries’, Journal of Economic Perspectives, 17(4): 99-118

Calvo, G., and Reinhart, C. (2002), ‘Fear of floating’, Quarterly Journal of Economics, 107, 379-408

Cecchetti, S., King, M., and Yetman, J. (2011), ‘Weathering the financial crisis: good policy or good luck?’, BIS working paper no. 351

Cobham, D. (2011), ‘Monetary policy architecture, financial institutions and financial markets in the Middle East and North Africa: an overview’, in D. Cobham and G. Dibeh (eds), Money in the Middle East and North Africa, Routledge

Cobham, D. (2015), 'Multiple objectives in monetary policy: a de facto analysis for 'advanced' economies', Manchester School, 83(s1): 83-106

Frankel, J. (2010), ‘Monetary policy in emerging markets: a survey’, in B. Friedman and M. Woodford (eds), Handbook of Monetary Economics, North Holland, volume 3; also NBER working paper no 16125

Frankel, J., Schmukler, S., and Serven, L. (2004), ‘Global transmission of interest rates: monetary independence and currency regime’, Journal of International Money and Finance, 23(5): 701-733

Frappa, S., and Mésonnier, J-S. (2011), ‘The housing boom of the late 1990s: did inflation targeting matter?’, Journal of Financial Stability, 6(4): 243-254

Ghosh, A., Gulde, A-M., and Wolf, H. (2002), Exchange Rate Regimes: Choices and Consequences, Cambridge, Mass.: MIT Press

Gros, D., and Thygesen, N. (1998), European Monetary Integration, 2nd edition, Harlow: Addison Wesley Longman

Grenville, S. (1997) ‘The evolution of monetary policy: from money targets to inflation targets’, in P. Lowe (ed.), Monetary Policy and Inflation Targeting, Reserve Bank of Australia

Habermeier, K., Kokenyne, A., Veryune, R., and Anderson, H. (2009), ‘Revised system for the classification of exchange rate arrangements’, IMF working paper 09/211

Hammond, G. (2012), ‘State of the art of inflation targeting’, Handbook no. 29, Centre for Central Banking Studies, Bank of England

Houben, A. (2000), The Evolution of Monetary Policy Strategies in Europe, Dordrecht: Kluwer

Juhn, G., and Mauro, P. (2002), ‘Long-Run Determinants of Exchange Rate Regimes: A Simple Sensitivity Analysis. IMF Working Paper No. 02/104

Laurens, B., Arnone, M., and Segalotto, J. (2009), Central Bank Independence, Accountability, and Transparency: A Global Perspective, Basingstoke: Palgrave Macmillan

Levy-Yeyati E. and Sturzenegger, F. (2005), ‘Classifying Exchange rate Regimes: Deeds vs. Words’, European Economic Review, 49(6): 1603-35

Levy-Yeyati, E., Sturzenegger, F., and Reggio, I. (2010), ‘On the endogeneity of exchange rate regimes’, European Economic Review, 54(5): 659-77

MacFarlane, I. (1997), ‘Monetary policy regimes: past and future’, Reserve Bank of Australia Bulletin, October, 20-31.

Ólafsson, T., and Pétursson, T. (2011), ‘Weathering the financial storm: the importance of fundamentals and flexibility’, in M. Beblavy, D. Cobham and L, Odor (eds), The Euro Area and the Financial Crisis, Cambridge University Press

Reinhart, C., and Rogoff, K. (2004) ‘The modern history of exchange rate arrangements: a reinterpretation’, Quarterly Journal of Economics, 119(1): 1-48

Rey, H. (2015), 'Dilemma not trilemma: the global cycle and monetary policy independence', NBER working paper 21162

Roger, S. (2010), ‘Inflation Targeting at 20: Achievements and Challenges’, in D. Cobham, O. Eitrheim, S. Gerlach and J. Qvigstad (eds), Twenty Years of Inflation Targeting: Lessons Learned and Future Prospects, Cambridge, Cambridge University Press

Rose, A. (2000), ‘One market, one money: the effect of common currencies on trade’, Economic Policy, 15(30): 7-46

Schmidt-Hebbel, K. (2010), ‘Inflation targeting and emerging market economies’, in D. Cobham, O. Eitrheim, S. Gerlach and J. Qvigstad (eds), Twenty Years of Inflation Targeting: Lessons Learned and Future Prospects, Cambridge, Cambridge

Tavlas, G., Dellas, H., and Stockman, A. (2008), ‘The classification and performance of alternative exchange-rate systems’, European Economic Review, 52(6): 941-63

Wolf, H., Ghosh, A., Berger, H., and Gulde A-M. (2008), Currency Boards in Retrospect and Prospect, Cambridge, Mass.: MIT Press