The central bank in an open developing economy often balances the national foreign exchange market by selling liquid assets (typically domestic sovereign securities) to commercial banks and other institutional investors that would otherwise be motivated to invest in foreign financial assets....

Conventional monetary theory holds that a country can only possess one nominal anchor in the long run. With an open capital account, the country must decide between an exchange rate target or independent monetary policy. The latter implies inflation targeting with a benchmark interest rate...

Evidence about commercial banks' liquidity preference says the following about the loan market in less developed countries (LDCs): (i) the loan interest rate is a minimum mark-up rate; (ii) the loan market is characterized by oligopoly power; and (iii) indirect monetary policy, a cornerstone of...