Financial Infusion and Exiting from a Money Rule

March 1, 1998

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Mark R. Stone Financial Infusion and Exiting from a Money Rule, (USA: International Monetary Fund, 1998) accessed November 21, 2024

Disclaimer: This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate

Summary

Money demand often surges after successful macroeconomic stabilization. This paper gives a name—financial infusion—to these surges because their size, unpredictability, and concurrence with other “success shocks” pose unique challenges to policy, especially under a money rule. An examination of 26 stabilization episodes shows that money to GDP can be expected to decline before stabilization and rise sharply thereafter. Analysis of the policy response to financial infusion under a money rule concludes that it amplifies output and price volatility, even if built into the rule. Finally, the main elements of an exit strategy from a money rule to an exchange rate or inflation target are discussed.

Subject: Demand for money, Exchange rates, Foreign exchange, Inflation, Inflation targeting, Monetary base, Monetary policy, Money, Prices

Keywords: Africa, Demand for money, Disturbance term wt, Exchange rate, Exchange rates, Inflation, Inflation targeting, Middle East, Monetary and exchange rate policy, Monetary base, Money demand, Money demand demand shock, Money demand increase, Money demand instability, Money growth, Money rule, Money supply, Stabilization, Vis-à-vis cash, Western Hemisphere, WP

Publication Details

Pages:

41
Volume:

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DOI:

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Issue:

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Series:

Working Paper No. 1998/031
Stock No:

WPIEA0311998
ISBN:

9781451980097
ISSN:

1018-5941

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