IMF Working Papers

Re-Establishing Credible Nominal Anchors After a Financial Crisis: A Review of Recent Experience

Author/Editor:

Alessandro Zanello ; Mark R. Stone ; Christopher J. Jarvis ; Andrew Berg

Publication Date:

April 1, 2003

Electronic Access:

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Summary:

This paper studies the question of how to achieve monetary policy credibility and price stability after a financial crisis. We draw stylized facts and conclusions from ten recent cases: Brazil (1999); Bulgaria (1997); Ecuador (2000); Indonesia (1997); Korea (1997); Malaysia (1997); Mexico (1994), Russia (1998); Thailand (1997); and Turkey (2001). Among our conclusions, highlights include: (i) monetary policy alone cannot stabilize; (ii) floats bring nominal stability quickly in countries with low pre-crisis inflation and hard pegs have been at least narrowly successful for countries in deeper disarray; (iii) in floats, early and determined tightening brings nominal stability and does not appear more costly for output; (iv) monetary aggregate targeting rarely serves as a coherent framework for floats; informal or full-fledged inflation targeting offers more promise.

Series:

Working Paper No. 2003/076

Subject:

Conventional peg Exchange rate arrangements Exchange rates Floating exchange rates Foreign exchange Inflation Prices