July 2020 Using the data: advance publications

Two papers which make use of the classification data are now available as advance publications:

David Cobham and Mengdi Song, ‘Transitions between monetary policy frameworks and their effects on economic performance’, Economic Modelling, https://doi.org/10.1016/j.econmod.2020.02.049:

Abstract

The widespread adoption of inflation targeting (IT) from the early 1990s led to investigations of its effect on macroeconomic performance (inflation and growth), with the emergence of a majority view that the effects were small for advanced countries but possibly larger for emerging economies. We revisit the issue, using a new de facto (rather than de jure) classification of monetary policy frameworks and employing the difference-in-differences approach with regression to the mean effects in order to deal with the problem of endogeneity. We find small effects for advanced countries but insignificant effects for emerging economies. We then question the nature of the mean to which regression occurs and suggest instead that there are strong international trend/network effects leading policymakers to make similar policy decisions (with similar macro outcomes) from within different frameworks. We also find IT has not affected macro performance in the period after the Global Financial Crisis. 

and

David Cobham and Mengdi Song, ‘How do countries choose their monetary policy frameworks?’, Journal of Policy Modeling, https://doi.org/10.1016/j.jpolmod.2020.04.008

Abstract

This paper investigates the determinants of countries’ choices of monetary policy framework. A brief narrative focused on groupings of countries motivates an econometric analysis which draws on previous work on the determinants of exchange rate regimes, bringing in standard factors as well as the trade networks of potential anchor currency blocs and the financial markets depth that are emphasised in the narrative. The model turns out to be able to predict three quarters of countries’ choices, and there is no obvious systematic pattern in the errors. The results have important implications for how countries should choose their monetary policy frameworks.

 

February 2020 Extension: Latin American countries

The classification has now been extended to (southern, central and northern) Latin America, covering 20 countries of which six were previously included as emerging economies: Argentina, Brazil, Chile, Mexico, Peru and Venezuela. At a later date a number of Caribbean countries will also be covered, so this will become a full Latin American and Caribbean grouping. A few small changes have been made to the text, but not the classification, for Venezuela.

July 2019 Extension: the Middle East and North Africa

The classification has now been extended to the MENA region, defined here to cover Iran, Turkey and 17 Arab countries. The list includes four that were previously included as emerging economies: Egypt, Jordan, Morocco and Turkey. One small classification change has been made for Jordan (1996-2000, identified previously as full exchange rate targeting but now as loose exchange rate targeting), there is a corresponding change to the country details text for Jordan, and there is a small change to the country details text for Turkey, 1989-2002. These changes have been applied under the emerging economies as well.

February 2019 Updating and Revision

The classification has now been extended to 2017 (so it now covers 44 years in total). In addition, one substantive change has been made: the US 1990-95 is now classified as ‘loosely structured discretion’ LSD instead of ‘well structured discretion’ WSD, which is more consistent with other episodes of LSD. The old classification can be found here, and the old individual country details here.

November 2018 Revision

The nomenclature of the second aggregation of monetary policy frameworks has been changed from ‘stages of development’ – with subgroups ‘basic’, ‘intermediate 1’, ‘intermediate 2’ and ‘developed’ – to ‘degree of monetary control’, with subgroups ‘rudimentary’, ‘intermediate’, ‘substantial’ and ‘intensive’. The change reflects both a view that ‘developed’ begged too many questions and the view that the previous perspective was inappropriately monotonic. The allocation of the various frameworks among these four aggregates has not been changed.

A comprehensive classification of monetary policy frameworks

This site is host to a new dataset with a comprehensive classification of monetary policy frameworks, prepared by David Cobham, professor of economics at Heriot-Watt University, Edinburgh, Scotland, UK (with many thanks to Alexander Cobham for his help in setting up the website).

The current dataset covers 60 advanced and emerging economies. Over time the dataset will be expanded to cover some 100 developing economies, starting with those from the Middle East and North Africa and those in Latin America.

This site provides an overview of the approach, including the original working paper; the results for individual countries; and the classification system used.

Researchers are encouraged to use the dataset in any relevant work, and are requested to keep us informed so that we can post links and commentary.