Comment on Manuel Guitián: The Role of Monetary Policy in IMF Programs

Abstract

Guitián’s paper is an instructive analysis on the well-known theme of the implementation of monetary policy in IMF programs. It summarizes a decade-long tradition of theorizing concerning the choice of an instrument for both the implementation of monetary policy and the measurement of the monetary policy stance in a program country. With this goal in mind, the author extensively compares the nature of domestic credit expansion and money supply as performance criteria. His standpoint is that, in general, the former is preferable. In section 3 Guitián promises a re-examination of the issues involved in the light of significant changes in the framework within which monetary policy must be conducted. New challenges have arisen from domestic financial deregulation and the internationalization of financial markets, which have been fostered by international financial liberalization. Domestic deregulation has increased the degree of substitutability between banking liabilities and those of other financial intermediaries. Due to the internationalization of financial markets there is an increased substitutability of currencies. Nevertheless, the author concludes that these new challenges which now confront monetary policy-makers do not really affect the conventional arguments; they only add to the complexities of actual policy implementation. This position seems to have been built on an early statement (in section 2) that, if anything, the presence of capital flows strengthens the link between domestic credit, the balance of payments, and the international reserve position of the economy.