Procyclical Monetary Policy and Governance

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

Abstract

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.

• Item Type: MPRA Paper
• Language: English
• Keywords: Collateral Constraints; Governance; Monetary Policy
• Subjects: F - International Economics > F4 - Macroeconomic Aspects of International Trade and Finance; O - Economic Development, Innovation, Technological Change, and Growth > O1 - Economic Development; E - Macroeconomics and Monetary Economics > E5 - Monetary Policy, Central Banking, and the Supply of Money and Credit

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