Countries in Transition and Monetary Policy : A Framework for Policy Development

While economies in transition are not devoid of monetary policy, changes desired in the functioning of these economies may necessitate innovations to administer monetary policy consistent with newly established goals. Although some goals may essentially be the same (e.g., full employment or price stability), the instruments for achieving those goals may not be present. A variety of approaches to monetary policy are presented; however, while several operating models are discussed, it is made clear that the approach adopted, by an economy in transition, has to be consistent with the institutional structures in place. The recommended path for policymaking begins with an assessment of the institutional setting and the economic philosophy of the country in transition; this is followed by an information approach, which focuses on: objectives and goal variables, monetary policy models, the effect of changing conditions, the role of central banks, integration of monetary and fiscal policies, institutional design for monetary stability, alternative model variables, implications of monetarism, and a concluding caveat on monetary control