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How do countries choose their monetary policy frameworks?

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  • Cobham, David
  • Song, Mengdi

Abstract

This paper investigates the determinants of countries’ choices of monetary policy framework. A brief narrative focused on groupings of countries motivates an econometric analysis which draws on previous work on the determinants of exchange rate regimes, bringing in standard factors as well as the trade networks of potential anchor currency blocs and the financial market depth that are emphasised in the narrative. The model turns out to be able to predict three quarters of countries’ choices, and there is no obvious systematic pattern in the errors. The results have important implications for how countries should choose their monetary policy frameworks.

Suggested Citation

  • Cobham, David & Song, Mengdi, 2020. "How do countries choose their monetary policy frameworks?," Journal of Policy Modeling, Elsevier, vol. 42(6), pages 1187-1207.
    • Handle: RePEc:eee:jpolmo:v:42:y:2020:i:6:p:1187-1207
    DOI: 10.1016/j.jpolmod.2020.04.008
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    2. Cobham, David & Song, Mengdi, 2020. "How do countries choose their monetary policy frameworks?," Journal of Policy Modeling, Elsevier, vol. 42(6), pages 1187-1207.
    3. Cobham, David, 2018. "A comprehensive classification of monetary policy frameworks for advanced and emerging economies," MPRA Paper 84737, University Library of Munich, Germany.
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    8. Klein, Michael W. & Shambaugh, Jay C., 2012. "Exchange Rate Regimes in the Modern Era," MIT Press Books, The MIT Press, edition 1, volume 1, number 026251799x, April.
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    18. Thornton, John, 2016. "Inflation targeting in developing countries revisited," Finance Research Letters, Elsevier, vol. 16(C), pages 145-153.
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    Cited by:

    1. Cobham, David & Macmillan, Peter & Mason, Connor & Song, Mengdi, 2022. "Economic performance under different monetary policy frameworks," Journal of Policy Modeling, Elsevier, vol. 44(2), pages 431-449.
    2. Lee, King Fuei, 2023. "Effects of Monetary Policy Frameworks on Stock Market Volatilities: An Empirical Study of Global Economies," MPRA Paper 119755, University Library of Munich, Germany.
    3. David Cobham, 2024. "Monetary policy frameworks since Bretton Woods, across the world and its regions," Review of World Economics (Weltwirtschaftliches Archiv), Springer;Institut für Weltwirtschaft (Kiel Institute for the World Economy), vol. 160(3), pages 873-903, August.
    4. David Cobham, 2022. "Monetary policy frameworks in the Middle East and North Africa: How do they compare with other groupings?," Scottish Journal of Political Economy, Scottish Economic Society, vol. 69(1), pages 108-130, February.
    5. Sullivan, Megan, 2024. "Understanding and Predicting Monetary Policy Framework Choice," Accountancy, Economics, and Finance Working Papers 2024-01, Heriot-Watt University, Department of Accountancy, Economics, and Finance.
    6. Cobham, David & Song, Mengdi, 2020. "How do countries choose their monetary policy frameworks?," Journal of Policy Modeling, Elsevier, vol. 42(6), pages 1187-1207.
    7. Sullivan, Megan, 2023. "Determinants of monetary policy frameworks in emerging and developing countries," MPRA Paper 118398, University Library of Munich, Germany.

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    More about this item

    Keywords

    Monetary policy frameworks; Inflation targets; Exchange rate targets; Discretion; Trade networks; Financial market depth;
    All these keywords.

    JEL classification:

    • E42 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Monetary Sytsems; Standards; Regimes; Government and the Monetary System
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • E61 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Policy Objectives; Policy Designs and Consistency; Policy Coordination
    • F40 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - General

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