Monetary Policy in Hybrid Regimes: The Case of Kazakhstan

June 13, 2014

Preview Citation

Format: Chicago

Natan P. Epstein, and Rafael A Portillo. Monetary Policy in Hybrid Regimes: The Case of Kazakhstan, (USA: International Monetary Fund, 2014) 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 analyzes the monetary policy framework in Kazakhstan. The authorities have been successful in containing inflation in the context of a managed exchange rate regime. Over the past two years, the central bank has taken steps to enhance its ability to regulate liquidity in the financial system. However, the current policy interest rate does not properly signal the stance of policy, reflected in a weak transmission from the policy rate to money market interest rates. With the use of a stylized model, the paper studies the macro determinants of money market interest rates under the current framework, and illustrates both the benefits and challenges of active interest rate policy. The model shows that limited use of instruments to steer short-term interest rates weakens the framework’s ability to counteract shocks. Finally, the paper explores the implications of varying degrees of exchange rate flexibility for interest rate policy and open market operations.

Subject: Banking, Central banks, Exchange rate adjustments, Exchange rate flexibility, Exchange rates, Financial services, Foreign exchange, Open market operations, Short term interest rates

Keywords: Aggregate demand, Central bank, Equilibrium exchange rate, Exchange Rate, Exchange rate adjustments, Exchange rate flexibility, Exchange rate fluctuation, Exchange rates, Floor rate, FX reserve, Global, Interest Rate, Interest rate channel, Interest rate corridor, Interest rate increase, Interest rate rule, Monetary Policy, Money Market, NBK deposit rate, NBK's interest rate corridor, Nominal exchange rate, Open market operations, Refinancing rate, Short term interest rates, USD exchange rate, WP

Publication Details

Pages:

32
Volume:

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DOI:

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Issue:

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Series:

Working Paper No. 2014/108
Stock No:

WPIEA2014108
ISBN:

9781498340724
ISSN:

1018-5941

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