The Effect of Financial Globalization on Monetary Policy Discipline: The Evidence from 22 Developing Countries
Fall 2011, Volume 6 - Number 1 (16 صفحه - از 135 تا 150)
The literature on the benefits and costs of financial globalization for developing countries has exploded in recent years. There seems to be a consensus that financial globalization has had a "discipline effect" on monetary policy, because it has reduced the returns from using monetary policy to stabilize the output. As a result, monetary policy over recent years has placed more emphasis on stabilizing inflation, leading to lower inflation and higher output stability. However, this consensus has not been accompanied by convincing empirical evidence that such a relationship exists.In this article, we study the relationship between financialglobalization and monetary policy regulation in a sample of 22 developing countries over the period of 1990 to 2006 using panel data approach. Our results confirm a negative relationship between financial openness and median inflation rates. It therefore appears to be the case that financial openness is one of a number of characteristics of those countries exhibiting monetary policy stability. The result is consistentwith those in Kose et al. (2006) who concluded that the primary benefitsof financial globalization may precisely be "collateral benefits" such as the possibility of enhanced monetary policy outcomes.However, the recent "sub-prime" financial turmoil has highlighted the possibility of the increased sophistication as a result of financial globalization. As asset bundles became more diversified, it appeared to be more difficult to assess the underlying asset quality of investment positions. The crisis does raise the question of whether losses incurred from investment vehicles increasingly used in the globalization period will force investors to avoid these types of vehicles in the future, and in the meantime lower the pace of financial globalization. Examining this issue is beyond the scope of this study and awaits future research.خلاصه ماشینی:
"As such, in contrast to the "disciplining effect" noted above, some believe that financial globalization hinders the ability of emerging markets’ central banks to pursue price stability, or even formal inflation targets, so as to leave them open to exchange rate volatility. In other words, a country cannot simultaneously maintain fixed exchange rates and an open capital market while pursuing monetary policy towards domestically oriented goals. With monetary policy concentrated on fixing the price level, most of those targeting inflation have abandoned conflicting exchange rate targets and allowed free international capital movements. Model Specification In this section, we will examine the evidence on financial integration and monetary policy outcomes which is measured as median inflation rates. Table 1: Panel evidence on financial openness and inflation volatility Random Effect Estimation Dependent Variable: log( it ) Period 1990-2006 (رجوع شود به تصویر صفحه) *** Significant at 1 percent confidence level. Concluding remarks The relatively large body of literature reviewed above suggests that financial openness, while increasing the exposure of nations to foreign shocks, has provided an additional source of market discipline and encouraged central banks to place greater emphasis on stabilizing prices than output. This change in policy appears to have contributed to the benign conditions observed in financial markets over the past fifteen years, as nations have experienced decreased output volatility, lower inflation rates, and reduced borrowing costs worldwide. Indeed, Kose, Prasad, Rogofi and Wei (2006) have recently concluded that the primary benefits of financial globalization may be exactly "collateral benefits" such as the possibility of enhanced monetary policy outcomes examined here."
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