Monetary Policy in Transition

Abstract

This paper analyzes monetary policy in transition. It examines the dynamics of monetary policy in Mongolia using granger-causality tests for monetary variables and inflation. The paper also analyzes money demand using data from 22 Mongolian regions during 1993-1998. The analyses confirm the key role of monetary policy in stabilization and reveal that even in a transition economy as rudimentary as Mongolia, a stable money demand and a predictable relationship between inflation and monetary variables do exist. Hence market-based monetary policy is effective. In addition, the analysis points to a difference between transition and industrial economies in the elasticity of money demand with respect to activity, reflecting the larger role for transactions demand for money.Transition economies;monetary policy, inflation, money demand, money supply, money stock, central bank, demand for money, moderate inflation, reserve requirements, monetary authorities, inflation process, monetary fund, real interest rate, monetary indicators, price level, monetary aggregates, price stability, real money, aggregate demand, real interest rates, inflation rate, monetary sector, national bank, relative prices, money growth, nominal interest rate, foreign currency, foreign exchange, monetary model, inflation performance