Monetary Economics in Developing Countries / Edition 2

by Subrata Ghatak

Overview

Thoroughly revised and updated in light of recent advances, Monetary Economics in Developing Countries is an ideal text for students of economic development and international finance, and a useful resource for researchers. The incorporation of new chapters on financial crises and inflation targeting, among others, reflects how understanding of monetary economics and its application to development has advanced in the last decade.

From the outset, the authors distinguish between the role of money in the developing world from its role in the developed world. They highlight the theoretical, institutional and empirical principles of monetary economics particular to analysing developing economies, enabling the student to grasp clearly not just the basic ideas of monetary economics but also how to apply them. Clear, concise and up-to-date coverage for undergraduate and postgraduate students taking courses in monetary economics in developing countries, development economics or international finance. New chapters on financial crises, inflation targeting and a close look at the role and future of financial institutions such as the International Monetary Fund. Thorough explanation of theoretical aspects of monetary economics and their application to developing economies.

About the Author:
Subrata Ghatak is Emeritus Professor of Applied Economics at Kingston University, London, UK

About the Author:
Jose R. Sanchez-Fung is Senior Lecturer in Economics at Kingston University, London, UK

Product Details

ISBN-13:	9780333572252
Publisher:	St. Martin's Press
Publication date:	01/01/1995
Pages:	208
Product dimensions:	6.14(w) x 9.21(h) x 0.59(d)

About the Author

SUBRATA GHATAK is Emeritus Professor of Applied Economics at Kingston University, London, UK. He has written eight books and published numerous articles in national and international journals and books. He has also acted as a Consultant to the World Bank and the United Nations.

JOSÉ R. SÁNCHEZ-FUNG is Senior Lecturer in Economics at Kingston University, London, UK. He has held positions as Visiting Scholar at Columbia University in New York, Senior Associate Member of St Antony's College, University of Oxford, and Director of Economic Research at the Central Bank of the Dominican Republic.

Table of Contents

List of tables     xi
List of figures     xii
Preface     xiv
Acknowledgments     xv
Introduction     1
What the book is about     1
An overview of the book     2
Developing countries' idiosyncrasies     4
Some stylized facts     5
Finance, growth and development     7
Introduction     7
Financial intermediaries     8
Law and finance     12
Banking regulation and supervision     13
Empirical evidence on finance and growth     15
Rural financial institutions     20
Unorganized money markets in developing countries, and some consequences     20
Determination of rural interest rates in developing countries     24
An evaluation     31
Policies for an integrated development of rural financial markets in developing countries     31
Rural money markets and implications for monetary policy     35
Stiglitz and Weiss's (1981) credit rationing model     39
Overcoming adverse selection problems     40
Theories of money and economic growth     43
A simple Harrod-Domar growth model     43
The neo-classical growthmodel     45
Money in a neo-classical growth model: the Tobin model     47
Problems in the application of neo-classical monetary growth theory to developing countries     49
Economic growth and the role of financial intermediaries     52
The Gurley-Shaw model     53
Economic development and 'financial accumulation'     54
Financial repression and economic growth: the McKinnon and Shaw model     56
A neo-structuralist view of monetary growth and development: van Wijnbergen-Taylor model     60
The Keynesian and monetarist views on the importance of money     63
The classical view     63
The Keynesian theory     68
Money and the interest rate     71
A general equilibrium approach: the Hicksian IS-LM curves     74
Monetary and fiscal policy     76
The monetarists' case     77
Special characteristics of developing countries     79
Money demand     81
Introduction     81
Theoretical models     82
Empirical models     85
Specifying money demand functions     89
Modelling empirical money demand     93
Demand for money in India   Anita Ghatak     97
Exploring the role of alternative ancillary variables in China's money demand   Anita Ghatak   Qing Zhang     105
Monetary institutions in developing countries     112
The central bank and its functions     112
The commercial banks: the creation of bank deposits     114
The changing pattern of commercial banking in developing countries     118
Central bank independence     120
Central banking in the 'Bank of England Group' of developing countries     123
Monetary policy transmission, rules and strategies     126
Introduction     126
The transmission mechanism of monetary policy     126
Monetary policy reaction functions     134
Monetary policy frameworks     141
Some developments in fiscal policy analysis     147
Conclusion     149
Money, inflation and growth     153
The causes of inflation     153
The effects of inflation on growth     161
The case against inflation     172
Major problems and policies for stabilization in developing countries     176
The Phillips curve     178
A model of inflation generation and stabilization     180
Exchange rate policy     184
Does the exchange rate matter?     184
Fixed exchange rates     187
Real exchange rate targeting and PPP rules     194
Fear of floating     195
Classifying exchange rate regimes     197
Debt and crises     199
Developing countries' borrowing before 1973     200
Debt problems after 1973     201
Benefits and costs of default theory     202
Application of the model to the debt crisis of 1982     204
Managing the debt crisis     205
Policy responses to the debt crisis of 1982     208
The International Monetary Fund's and the World Bank's Heavily Indebted Poor Countries (HIPC) initiative     211
Financial crises in the 1990s     212
Sudden stops     214
Theoretical models     215
Balance sheets, liability dollarization and monetary policy     217
Preventing crises, and early warning systems (EWS)     220
A small model of India   Paul Levine     221
The international financial institutions     234
Introduction     234
The need for international monetary reserves     235
The exchange rate and the need for reserves     236
Problems of international liquidity      237
The nature and role of SDRs     240
The Extended Fund Facility     248
The Trust Fund     249
Reforming the IMF     249
Measuring the impact of IMF programmes on economic performance     251
References     255
Index     290

Editorial Reviews

Highlights basic principles of monetary economics and their application in the Third World, drawing on recent data from various developing countries in Asia, South America, and Africa. Charts, tables, and equations illustrate issues including money supply and demand, causes and consequences of financial liberalization, the structuralist versus the monetarist debate, and inflation. This second edition includes new chapters on exchange rate policies and debt crisis, and separate technical and mathematical sections. Annotation c. Book News, Inc., Portland, OR (booknews.com)

Booknews