RESEARCH ARTICLE
Effects of monetary policy credibility and the open economy trilemma on monetary policy efficiency
Gabriel Caldas Montes,
Irineu da Silva Rodrigues Júnior,
Júlio Cesar Albuquerque Bastos,
Linican Monteiro Batista,
Corresponding Author
Gabriel Caldas Montes
Department of Economics and National Council for Scientific and Technological Development (CNPq), Fluminense Federal University, Niterói, Brazil
Correspondence
Gabriel Caldas Montes, Rua Alexandre Moura, Bloco F, 8–São Domingos, Niterói, Rio de Janeiro 24210-200, Brazil.
Email: [email protected]
Search for more papers by this authorIrineu da Silva Rodrigues Júnior
Department of Economics, Candido Mendes University, Rio de Janeiro, Brazil
Search for more papers by this authorJúlio Cesar Albuquerque Bastos
Department of Economics, Fluminense Federal University, Niterói, Brazil
Search for more papers by this authorLinican Monteiro Batista
Department of Economics, Fluminense Federal University, Niterói, Brazil
Search for more papers by this authorGabriel Caldas Montes,
Irineu da Silva Rodrigues Júnior,
Júlio Cesar Albuquerque Bastos,
Linican Monteiro Batista,
Corresponding Author
Gabriel Caldas Montes
Department of Economics and National Council for Scientific and Technological Development (CNPq), Fluminense Federal University, Niterói, Brazil
Correspondence
Gabriel Caldas Montes, Rua Alexandre Moura, Bloco F, 8–São Domingos, Niterói, Rio de Janeiro 24210-200, Brazil.
Email: [email protected]
Search for more papers by this authorIrineu da Silva Rodrigues Júnior
Department of Economics, Candido Mendes University, Rio de Janeiro, Brazil
Search for more papers by this authorJúlio Cesar Albuquerque Bastos
Department of Economics, Fluminense Federal University, Niterói, Brazil
Search for more papers by this authorLinican Monteiro Batista
Department of Economics, Fluminense Federal University, Niterói, Brazil
Search for more papers by this authorFirst published: 11 November 2022
Abstract
This study investigates the effects of monetary policy credibility and the open economy trilemma on monetary policy efficiency in developing countries. Based on a sample of 28 developing countries, the findings reveal that monetary policy credibility increases monetary policy efficiency. The results also show that central banks in developing countries have more efficient monetary policies when they choose a policy arrangement contrary to the ‘middle-ground convergence’; but, to the extent they accumulate international reserves, it allows them to move to a middle-ground strategy. Regarding the trilemma, the estimates suggest when monetary policy is independent, monetary policy is more efficient. Furthermore, when financial openness and exchange rate stability are deepened, central banks become less efficient in conducting monetary policy. However, when countries hold higher levels of international reserves, the positive effect of monetary autonomy on monetary policy efficiency decreases and the negative effect of financial liberalisation on monetary policy efficiency decreases.
Open Research
DATA AVAILABILITY STATEMENT
The data that support the findings of this study are available from the corresponding;author upon reasonable request.
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