Monetary Policy Challenges for Emerging Market Economies

Eswar Prasad, Gill Hammond, and Ravi Kanbur


This paper introduces a significant collection of papers on monetary policy in emerging market economies, written by leading analysts and policymakers. Does existing economic theory provide lessons that are pertinent for designing effective monetary policy frameworks in emerging markets? What can be learnt from cross-country studies and from experiences of individual countries that have adopted different approaches? While country-specific circumstances and initial conditions matter a great deal in formulating suitable frameworks, are there clear general principles that can serve as a guide in this process? These are among the issues addressed in the dialogue between academics and policymakers represented in the volume. In this paper, we provide an overview of the main issues, linking them to broader debates in the academic literature as well as an assessment of how individual countries have chosen to respond to specific policy challenges and what the consequences have been. We discuss many controversies where there are still sharp differences in views between and amongst theorists and practitioners. We also delineate a few key analytical issues where there is still a yawning gap between theory and practice. In the process, we set out a broad agenda for further research in this area.