Monetary Transmission in Low Income Countries

By Peter J Montiel, Antonio Spilimbergo, Prachi Mishra

October 1, 2010

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Format: Chicago

Peter J Montiel, Antonio Spilimbergo, and Prachi Mishra. Monetary Transmission in Low Income Countries, (USA: International Monetary Fund, 2010) 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

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.

Subject: Bank credit, Banking, Central bank policy rate, Discount rates, Financial institutions, Financial markets, Financial services, Government securities, Money, Money markets

Keywords: Bank concentration, Bank credit, Bank lending channel, Bank rate, Banks, Central and Eastern Europe, Central bank policy rate, Commercial bank, Cost of funds, Discount rate, Discount rates, Excess reserves, Exchange rate, Expenditure switching, Government securities, Institutions, Interest rate, Loan growth, Market rate, Monetary policy, Money market, Money markets, Money-market rate, Rate of return, Sub-Saharan Africa, Transmission mechanism, WP

Publication Details

Pages:

42
Volume:

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DOI:

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Issue:

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Series:

Working Paper No. 2010/223
Stock No:

WPIEA2010223
ISBN:

9781455208883
ISSN:

1018-5941

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