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Monetary Transmission in Low Income Countries

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  • Mr. Peter J Montiel
  • Mr. Antonio Spilimbergo
  • Ms. Prachi Mishra

Abstract

This paper reviews monetary transmission mechanisms in low-income countries (LICs) to identify aspects of the channels that may operate differently in LICs relative to advanced and emerging economies. Given the weak institutional frameworks, reduced role of securities markets, imperfect competition in the banking sector and the resulting high cost of bank lending to private firms, the traditional channels (interest rate, bank lending, and asset price) are impaired in LICs. The exchange rate channel is also undermined by central bank intervention in the foreign exchange market. These conclusions are supported by review of the institutional frameworks, statistical analysis, and previous literature.

Suggested Citation

  • Mr. Peter J Montiel & Mr. Antonio Spilimbergo & Ms. Prachi Mishra, 2010. "Monetary Transmission in Low Income Countries," IMF Working Papers 2010/223, International Monetary Fund.
    • Handle: RePEc:imf:imfwpa:2010/223
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    More about this item

    Keywords

    WP; exchange rate; monetary policy; money market; commercial bank; interest rate; banks; institutions; discount rate; transmission mechanism; bank concentration; rate of return; bank rate; excess reserves; loan growth; bank lending channel; expenditure switching; money-market rate; cost of funds; market rate; Bank credit; Central bank policy rate; Government securities; Discount rates; Money markets; Sub-Saharan Africa; Central and Eastern Europe;
    All these keywords.

    JEL classification:

    • E5 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit
    • O11 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Macroeconomic Analyses of Economic Development
    • O16 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Financial Markets; Saving and Capital Investment; Corporate Finance and Governance

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