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Financial Liberalization and Its Impact on Monetary Policy

A Comparative Study on Asia and Latin America


Christina Stahn

The focus of this study is to identify similarities and differences of monetary policy in Korea, Indonesia, Malaysia, Chile, Argentina, and Mexico following diverging financial liberalization strategies. The evolution of monetary transmission channels, targets and instruments is examined in connection with the timing and sequencing of financial reforms. Money demand functions are analyzed with respect to stability, causality, and structural breaks. It is shown that the gradual (Asian) liberalization strategy affected monetary policy in a different way than the big-bang (Latin American) approach. Constraints on monetary management are imposed by complex monetary transmission channels changing in view of financial sector crises, alterations in exchange rate regimes, and the increasing globalization of financial markets.
Contents: Similarities and differences of monetary policy in six Asian and Latin American countries following diverging financial liberalization strategies: Financial repression – Timing and sequencing of financial reforms – Monetary targets and instruments after financial liberalization – Money demand in a liberalized financial system.