Monetary Transmission in Low Income Countries

43 Pages Posted: 1 Feb 2011

See all articles by Prachi Mishra

Prachi Mishra

International Monetary Fund (IMF) - Research Department

Peter J. Montiel

Williams College - Department of Economics

Antonio Spilimbergo

International Monetary Fund (IMF) - Research Department; Centre for Economic Policy Research (CEPR); University of Michigan at Ann Arbor - The William Davidson Institute

Multiple version iconThere are 2 versions of this paper

Date Written: October 2010

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.

Keywords: Asset prices, Banking sector, Central bank policy, Cross country analysis, Exchange rates, Financial institutions, Financial intermediation, Loans, Low-income developing countries, Monetary policy, Monetary transmission mechanism, Securities markets

Suggested Citation

Mishra, Prachi and Montiel, Peter J. and Spilimbergo, Antonio, Monetary Transmission in Low Income Countries (October 2010). IMF Working Papers, Vol. , pp. 1-42, 2010. Available at SSRN: https://ssrn.com/abstract=1750711

Prachi Mishra

International Monetary Fund (IMF) - Research Department ( email )

700 19th Street NW
Washington, DC 20431
United States

Peter J. Montiel

Williams College - Department of Economics ( email )

Fernald House
Office: Fernald 14
Williamstown, MA 01267
United States
413-597-2103 (Phone)
413-597-4045 (Fax)

HOME PAGE: http://www.williams.edu/Economics/faculty/montiel.htm

Antonio Spilimbergo

International Monetary Fund (IMF) - Research Department ( email )

700 19th Street NW
Washington, DC 20431
United States
202-623-6346 (Phone)
202-623-6336 (Fax)

Centre for Economic Policy Research (CEPR)

London
United Kingdom

University of Michigan at Ann Arbor - The William Davidson Institute ( email )

724 E. University Ave.
Wyly Hall
Ann Arbor, MI 48109-1234
United States

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