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Mr. Noriaki Kinoshita and Mr. Cameron McLoughlin

Front Matter Page African Department Contents I. Introduction II. Review of the Literature A. Macroeconomic Factors Affecting Monetization B. The Impact of Financial Sector Reforms on Financial Deepening C. Economic Growth Effects of Financial Sector Development III. Empirical Analysis A. The Model and Data B. Estimation Methodology C. Estimation Results IV. Conclusions References Figures 1. Mean Monetization Ratio: Average, 1973–2005 2. Monetization Ratio, 1970–2005 Tables 1. Descriptive Statistics 2. Summary

Anand G. Chandavarkar

M onetization , defined as the enlargement of the sphere of the monetary economy, is among the most significant aspects of the growth and development of the economies of less developed countries (referred to hereafter as LDCs). It involves the extension through time and space of the use of money in all its aspects—namely, as a medium of exchange, a unit of account, and a store of value—to the nonmonetized (subsistence and barter) sector. The monetization ratio, that is, the proportion of the total of goods and services of an economy that is monetized, in the

Mr. Noriaki Kinoshita and Mr. Cameron McLoughlin

foreign banks contribute much to the growth process of developing countries ( Zhuang et. al., 2009 ). III. Empirical Analysis A. The Model and Data We consider a model where the monetization ratio, measured as the ratio of broad money to nominal GDP, is associated with macroeconomic and demographic factors as well as financial sector reforms. The choice of explanatory variables is motivated by the existing studies in the literature: log of per capita real GDP which captures the level of economic development; real bank deposit rate which is the

Mr. Atish R. Ghosh

5 percent (not percentage points)—increase in the ratio of base money to GDP, four had inflation rates at or below 15 percent. The two surprises are Belarus—where the data are rather suspect—and Uzbekistan, whose monetization ratio rose to 9.9 percent (from 8.3 in 1995) despite 64 percent inflation. There is at least some evidence, therefore, that the asymmetry between re-monetization and de-monetization observed in other countries is relevant for the BRO countries as well. Indeed, De Broeck, Krájnyák and Lorie (1996) , using a panel of 6 transition countries

Mr. Noriaki Kinoshita and Mr. Cameron McLoughlin
The degree of an economy’s monetization, which has an important implication on economic growth, can be affected by the conduct of monetary policy, financial sector reform, and episodes of financial crises. The paper finds that monetization--measured by the ratio of broad money to nominal GDP-- in low- to middle-income countries is significantly correlated with per-capita GDP, real interest rates, and financial sector reform. It suggests that maintaining an upward momentum in monetization can be an important policy objective, particularly for low-income countries, and that monetary and financial sector policies need to be conducive to enhancing monetization.
International Monetary Fund. Research Dept.
This chapter focuses on the impact of monetary and fiscal policy under the flexible exchange rates and alternative expectations structures. Several economists have argued that, to understand recent exchange rate movements, one must examine the process by which exchange rate expectations are formulated. In order to describe the influence of exchange rate expectations on the adjustment process, this paper examines a small, open economy's response to either an increase in the money supply or a higher level of debt-financed government spending under the assumption that exchange rate expectations are either rational, semi-rational, or adaptive. It is argued that the economy's response to an increase in the money supply is much more sensitive to the expectations structure than is its response to an increase in government spending. The analysis also shows that, following an increase in the money supply, the exchange rate will overshoot its long term value regardless of the type of expectations structure that exists. The domestic interest rate will be the variable most strongly influenced by the way the private sector formulates its expectations.
International Monetary Fund

Effective Exchange Rates 4. Monetization: Ratio of Broad Money to GDP 5. Monetization: Ratio of Private Sector Credit to GDP E xecutive S ummary Beginning in 1994, the Fund has provided almost continuous financial assistance to Armenia in support of its economic reform efforts. Given Armenia’s long-term program engagement with the Fund, preparation of an ex post assessment is required. Armenia’s overall macroeconomic performance—particularly its strong growth and low inflation—compares favorably with similar countries in the region. Especially in recent

International Monetary Fund

(Percentage change) Real GDP -8.2 0.5 1.7 -1.9 1.7 Consumer prices 1/ 60.4 28.6 11.3 1.9 18.1 Broad money 106.1 13.8 32.3 -14.1 83.4 Monetization ratio 2/ 11.6 9.8 10.3 8.7 14.1 Money multiplier 1.8 1.8 1.6 1.8 2.1 (In percent) 3-month treasury bill rate 3/ 173.8 38.0 17.6 25.8 16.3 (In percent of GDP) Government revenue and grants 16.9 13.2 13.3 18.3 18.6 Government expenditures 20.1 18.6 20.1 26.0 24.0 Overall balance