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Money in Developing countries: Features and some stylised facts

Money in Developing countries: Features and some stylised facts

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Published by Venkatesh Swamy


Money in Developing countries: Features and some stylised facts

Chapter 1, GSF

2

Features of developing countries

The monetary and financial challenges facing developing countries are often unlike those in advanced economies.

Some of the related characteristics reveal themselves following transitory shocks to the economy, but others are structural or persistent in nat


Money in Developing countries: Features and some stylised facts

Chapter 1, GSF

2

Features of developing countries

The monetary and financial challenges facing developing countries are often unlike those in advanced economies.

Some of the related characteristics reveal themselves following transitory shocks to the economy, but others are structural or persistent in nat

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Published by: Venkatesh Swamy on Dec 22, 2009
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03/18/2012

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KINGSTON UNIVERSITY, LONDONSCHOOL OF ECONOMICSMonetary Economics in Developing CountriesFE3178, 2009-2010Lecture 1
 Money in Developing countries:Features and some stylised facts
Chapter 1, GSF
1
 
Features of d eveloping countries
The monetary and financial challenges facing developingcountries are often unlike those in advanced economies.Some of the related characteristics reveal themselves followingtransitory shocks to the economy, but others are structural or  persistent in nature.
1. F inancial underdevelopment
, and particularly weak financial institutions and a lack of adequate prudentialsupervision, prevail in developing countries.
So
in these economies financial crises are usually more protracted and difficult to resolve.In developing countries incomplete information is an importantfeature, often leading to financing shortages for otherwise potentially fruitful ventures.
 
2
 
Rural credit institutions and other micro-finance schemes are aconsequence of the aforesaid financial underdevelopment, andfeature prominently in developing countries.
2. P oor fiscal management
tends to amplify the problemscharacterising the monetary dynamics in developing countries,and this feature can lead to undesirable situations like fiscaldominance.In the context of fiscal dominance, the central bank may finditself financing fiscal budget deficits and debt repayments by printing money, allowing the government to temporarily complywith an otherwise non-binding fiscal constraint.Such a mechanism often features in developing economies’ policymaking -sometimes leading to hyperinflations like inBolivia during the 1980s.
3. M onetary institutions in developing countries tend tocommand low credibility with the general public .
And in that
 
3

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