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

By Selim A Elekdag, Nabil Ben Ltaifa, Todd Schneider, Saade Chami

January 1, 2007

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Selim A Elekdag, Nabil Ben Ltaifa, Todd Schneider, and Saade Chami. Can a Rule-Based Monetary Policy Framework Work in a Developing Country? The Case of Yemen, (USA: International Monetary Fund, 2007) accessed December 3, 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

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.

Subject: Exchange rate flexibility, Exchange rate pass-through, Exchange rates, Inflation, Monetary policy frameworks

Keywords: Exchange rate, Interest rate, Monetary policy, WP

Publication Details

Pages:

28
Volume:

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DOI:

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Issue:

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Series:

Working Paper No. 2007/006
Stock No:

WPIEA2007006
ISBN:

9781451865707
ISSN:

1018-5941

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