Loosely structured discretion (LSD) is defined in the original paper on the Comprehensive Monetary Policy Frameworks (CMPF) classification as “covering cases where the instruments are effective but the objectives and trade-offs are unclear; or where the objectives and trade-offs are clear but the instruments are ineffective; or (more often) where both criteria are partly, but only partly, fulfilled. This last category [LSD] covers a range of different monetary arrangements and, partly for this reason, is very common; however, there seems to be no clear principle that would make it possible to disaggregate it further” (Cobham, 2021, pp6-7). There is a possibility that the wide range of arrangements included in this single monetary policy framework (MPF) could conceal differences between countries that are as large as those between different MPFs, which would detract from the clarity of the historical narrative and undermine, for example, comparisons of the economic performance associated with different MPFs. What is needed is an analytical typology of monetary arrangements included within LSD that can be applied empirically to identify different types of arrangements.
The CMPF classification relies on information about countries’ objectives and instruments. In many cases LSD can be regarded as a residual category, that is, a category for countries which have some limited ability to operate monetary policy but not enough to pursue objectives about which they are in any case unclear. For others it might be a choice, where the country has relatively good instruments but a range of objectives which it chooses not to quantify or to prioritise. Cobham (2022, p129) referred to the former as cases of ‘LSD by default’ and to the latter as ‘LSD by choice’, a distinction which is informative and useful. There is not enough information on these (LSD) countries’ monetary objectives to make the appropriate distinctions – and if details of quantified objectives were available, that information would probably indicate some other MPF. However, it turns out to be possible to make a useful and consistent differentiation on the basis of monetary instruments. A full discussion of the issues involved and the typology of the three-way division of LSD can be found here, and a spreadsheet which shows the allocation of all instances of LSD between the three types can be found here (the older version covering 1974-2017 can be found on the Archive page).
Monetary Policy Frameworks 