In countries without an explicit inflation targeting mechanism, a stable relationship between the monetary base and the money supply allows policymakers to implement changes in monetary policy with a reasonable degree of certainty about the impact on the money supply. The relationship can,...

Traditional macroeconomic models suggest that monetary policy changes are largely ineffective in fixed exchange rate economies. However, Edwards and Vegh (1997) present a model that shows this might not be the case, as a tightening in monetary policy raises financial costs faced by firms and...