This paper studies the question of how to achieve monetary policy credibility and price stability after a financial crisis. We draw stylized facts and conclusions from ten recent cases: Brazil (1999); Bulgaria (1997); Ecuador (2000); Indonesia (1997); Korea (1997); Malaysia (1997); Mexico (1994), Russia (1998); Thailand (1997); and Turkey (2001).

Among our conclusions, highlights include:
(i) monetary policy alone cannot stabilize;
(ii) floats bring nominal stability quickly in countries with low pre-crisis inflation and hard pegs have been at least narrowly successful for countries in deeper disarray;
(iii) in floats, early and determined tightening brings nominal stability and does not appear more costly for output;
(iv) monetary aggregate targeting rarely serves as a coherent framework for floats; informal or full-fledged inflation targeting offers more promise.

Author/Editor: Berg, Andrew ; Jarvis, Christopher J. ; Stone, Mark R. ; Zanello, Alessandro ; Research Department of the IMF

IMF Series: Working Paper No. 03/76
Authorized for Distribution: April 1, 2003

The paper can be obtained in PDF format here.

Posted on April 30th, 2003 by jl
Filed under: Economic Theory & Research