Can a Rule-Based Monetary Policy Framework Work in a Developing Country? The Case of Yemen

30 Pages Posted: 19 Jan 2007

See all articles by Saade Chami

Saade Chami

International Monetary Fund (IMF)

Selim Ali Elekdag

International Monetary Fund (IMF) - Policy Development and Review Department

Todd Schneider

International Monetary Fund (IMF)

Nabil Ben Ltaifa

International Monetary Fund (IMF)

Date Written: January 2007

Abstract

Monetary policy in Yemen is largely rudimentary and ad hoc in nature. The Central Bank of Yemen's (CBY) approach has been based on discretionary targeting of broad money without any clear target to anchor inflation expectations. This paper argues in favor of a new formal monetary policy framework for Yemen emphasizing a proactive and rule-based approach with a greater direct focus on price stability in the context of a flexible management of the exchange rate. Although, as in many developing countries, institutional capacity is a concern, adopting a more formal framework could impel the kind of changes that are required to strengthen the ability of the CBY in achieving low and stable rates of inflation over the medium term.

Keywords: Monetary policy, Yemen, Republic of, Inflation targeting, Developing countries, Exchange rates, Prices

JEL Classification: E52, E58, O23

Suggested Citation

Chami, Saade and Elekdag, Selim Ali and Schneider, Todd and Ltaifa, Nabil Ben, Can a Rule-Based Monetary Policy Framework Work in a Developing Country? The Case of Yemen (January 2007). IMF Working Paper No. 07/6, Available at SSRN: https://ssrn.com/abstract=958169

Saade Chami (Contact Author)

International Monetary Fund (IMF) ( email )

700 19th Street, N.W.
Washington, DC 20431
United States

Selim Ali Elekdag

International Monetary Fund (IMF) - Policy Development and Review Department ( email )

700 19th St. NW
Washington, DC 20431
United States

Todd Schneider

International Monetary Fund (IMF) ( email )

700 19th Street, N.W.
Washington, DC 20431
United States

Nabil Ben Ltaifa

International Monetary Fund (IMF) ( email )

700 19th Street, N.W.
Washington, DC 20431
United States

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