Do Monetary Policy Frameworks Matter in Low-Income Countries?

First, we analyze a cross-country panel dataset of 79 LICs over the period 1990 to 2015 to assess the impact of external shocks on real GDP growth, and we find highly significant differences between LICs where the central bank targets monetary aggregates or inflation compared to LICs that use the nominal exchange rates as the main nominal anchor.

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We verify the parallel trends assumption over the “pre-treatment” period of 1986–1989; indeed, neither group exhibited a significant trend in growth over that period.

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