According to Ghatak...?
What are the reasons why monetary policy is different and harder to implement in developing countries?
- sensekonomikxLv 71 decade agoFavorite Answer
To know about Ghatak's views, one may try contacting him (http://www.kingston.ac.uk/~ku12577/ ). Best is one reads the relevant part of this book : Monetary Economics in Developing Countries, Second Edition (Hardcover)
by Subrata Ghatak (Editor). This book highlights some of the basic principles of monetary economics and their application to the Third World. Drawing on recent data from a wide variety of developing countries, Subrata Ghatak discusses central issues such as: money supply and demand and associated problems of stability; causes and consequences of financial liberalisation; the 'structuralist' versus the 'monetarist' debate; inflation and economic development and problems of Third World debt. This new edition extensively revises earlier material and has new chapters on Rural Financial Institutions, Exchange Rate Policies and the Debt Crisis in Less Developed Countries. Fully illustrated and written in an accessible style, with case studies and separate technical and mathematical sections, it will be invaluable for students of monetary economics in developing countries.
In general, I would say that the reasons why monetary policies are harder and difficult to implement in developing countries are:
1. Existence of large non-monetised economy where exchanges takes place in kind.
2. Inadequate coverage of population by banking (high population per bank branch office).
3. Existence of large black economy.
4. Existence of large non-bank financial intermediaries,
5. Inadequate infrastructure of collection and compilation of data on economic activities to judge timing of monetary policy measures.
6. Relatively low economic freedom and continuation of extensive govt. controls despite liberalisation and opening up to World markets.
7. Large inflow of foreign capital, upsetting foreign exchange rate.
8. Dissonance with Fiscal policy dictated by political considerations of ruling party/ Govt.
9. Low degree of independence of the central bank from the monitry of Finance/ Govt. Treasury