Image credit: “The Forth Bridge, a Unesco World Heritage site. Scotland” by Chris Golightly is licensed under CC BY-NC-SA 2.0.
This website exists to provide a repository for an original database of monetary policy frameworks, classified according to a more detailed and multi-dimensional set of criteria than has been used before, with the rationale for the individual country classifications made available through the country details. Since February 2018 when the site was launched and the original working paper finalised (revised version now published in Oxford Economic Papers here), work has continued to expand the coverage.
We now cover 107 countries (and/or currency areas, such as the Eurozone): to the 27 ‘advanced’ and 33 ‘emerging’ countries initially included have been added an additional 15 Middle East and North African countries, 14 Latin American countries, and 18 Asian countries/currency areas. Together, these account for roughly 95% of world GDP and around 84% of world population.
The first major trend revealed by the data is the move away from exchange rate targets and towards domestic, particularly inflation, targets. This can be seen clearly in the visualisations for different groups of countries, in terms of the full menu or the aggregation by target variables (and with the charts scaled in different ways). This trend is very clear for the advanced countries, strong for emerging and Latin American countries, but much less strong in the MENA and Asian groupings.
The second major trend is the move towards frameworks whose more sophisticated financial and monetary infrastructure offers higher – substantial and intensive – degrees of monetary control, as seen in the visualisations for the different country groups by degree of monetary control. This trend is more consistent across country groupings.
It may also be useful to ask how the classification has performed through the extension to additional countries. The answer is that the classification has held up well, and no issues have emerged that would support any significant changes.
This no doubt reflects the fact that, although the classification was devised mainly on the basis of work on advanced and emerging countries, some work had already been done at an early stage on developing as well as emerging MENA countries. In addition, the distinction between emerging and developing is less than watertight (which is why both are included in the regional groupings), and some of the emerging economies covered had clear ‘developing’ country characteristics in the 1970s and 1980s. Thus the classification has been able to deal with the range of countries at varying per capita income levels, and from different regions, that have subsequently been assessed.
For the future, the aim is first to get to a more or less complete coverage of countries/currency areas other than very small ones, defined as those with a population under 250,000 in 2017: that means around 175. The major gaps remaining are Sub-Saharan Africa, the Caribbean (including Cuba), non-EU emerging and developing European countries, and the ex-USSR countries of Eurasia and Central Asia, from Georgia and Armenia to Tajikistan and Kyrgyzstan.
Second, a concern flagged up in the original paper (Cobham, 2018) has indeed turned out to be important: the category ‘loosely structured discretion’ (LSD) is a very wide category, such that very different countries, or one country under very different arrangements in different periods (e.g. India), all end up in this one category. The problem is that it is possible to conduct monetary policy without specified or quantified objectives in quite different ways: the classification has to be discretion in each case, and there is a wide range of possible arrangements in between the more easily defined and identified end-point categories of ‘unstructured’ and ‘well-structured’ discretion. The investigation is therefore driven to focus more on the instruments available since they determine what objectives are feasible, and that is the main reason why the country details for many developing countries are much longer than those for advanced countries with precise objectives within well-structured monetary policy frameworks.
The question that then arises is whether it is possible to make a finer disaggregation of the LSD category in some other way, for example on the basis of the monetary policy instruments available that obviously affect the ability to pursue quantitative objectives if desired. The answer, as it appears so far, is that it would be possible to make a triage between countries/frameworks with only direct instruments, those that are using some indirect instruments and moving towards the adoption of others, and those which rely essentially on indirect instruments. Countries in the latter category can be regarded as ‘LSD by choice’: they have the instruments that would allow them to pursue specific quantitative targets if they so wished. On the other hand, those in the other two categories are ‘LSD by default’, insofar as they do not have the ability to successfully pursue quantified objectives even if they wished to do so. Such a triage will be attempted in the future, drawing directly on the country details already assembled, after the gaps above have been filled.
After that, it will be time to update the whole classification (as in painting the Forth Bridge, a few miles down the road from Heriot-Watt, at least before the new painting procedure of 2011, see https://www.theforthbridges.org/forth-bridge/history/restoration/).
Monetary Policy Frameworks 