role of monetary policy in developing countries

December 12, 2020 0 Comments

Generally, a developing country is prone to the efforts of international cyclical fluctuations. The role of monetary policy to accelerate economic stability and full employment is restricted and even secondary in less developing countries. Still another role played by the fiscal policy in developing countries is of maintaining reasonable internal and external economic stability. Monetary and fiscal policies are closely related, and both have profound impacts on economic development throughout the world. 3 The Stabilising Role of Monetary Policy . With a simple model, we demonstrate that institutional quality has important implications for the design of monetary policies and can produce several departures from the conventional wisdom. This concludes budgets, debts, deficits and state spending. ADVERTISEMENTS: Some of the major limitations of monetary policy in under-developed countries are as follows: (1) Under-developed Money Market: The money market in developing countries is highly under-developed. Due to the unorganized nature of the money market and lack of its integration with the central bank, the traditional methods of credit control like bank rate […] 1. The ability of monetary policy to influence credit and the real economy is of central concern to policymakers and academics. This question is particularly pressing for developing countries, where the channels of monetary policy are impeded by financial underdevelopment and weak institutions (Beck et al. ADVERTISEMENTS: The experience of underdeveloped countries reveals that monetary policy plays a limited role in such countries: The following arguments are given in support of this view. Just like the industrialized countries, they face different constraints and therefore have different policies. IMF role in Consultation and guidance: The IMF provides the necessary machinery for consultation and collaboration on international monetary problems. The most common policies used are the monetary targeting which most Such countries mainly export primary products and import manufactured and capital goods. 2.1 - MONETARY POLICY IN LESS DEVELOPED ECONOMIES In LDCs, in the context of development, monetary policy has an active role and is considered quite relevant. In sum, monetary policy cannot be expected to directly contribute to raising long-term economic growth, though it can foster sustainable growth by maintaining an environment of price stability. Large Non-monetized Sector: ADVERTISEMENTS: There is a large non-monetized sector which hinders the success of monetary policy in such countries. The basic reason is that the various weapons of monetary policy are not much conducive to the environment and smooth functioning of these economies. Downloadable (with restrictions)! The inability to perform these functions on a global scale places developing countries at the bottom of this structure, suggesting that most developing nations lack monetary sovereignty. Weak public institutions, including high levels of corruption, characterize many developing countries. 2009, Beck 2011). Fiscal policy deals with macroeconomic levers of power. The central bank of a developing country is to frame its monetary and credit policy in such a fashion that larger and desired quantities of bank credit go to the priority sectors, such as agriculture, cooperatives, small industries and export trade. People mostly live in rural areas where […] All developing countries will achieve full convertibility. Not much conducive to the efforts of international cyclical fluctuations ] All countries. The environment and smooth functioning of these economies: the imf provides the necessary machinery for Consultation and collaboration international! 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