Main Objectives of Monetary Policy in Underdeveloped Countries. 1. Topics covered include financial development and economic growth in underdeveloped countries; instruments and techniques used in the implementation of monetary policy: and econometric policy models. Large Non-monetized Sector: ADVERTISEMENTS: There is a large non-monetized sector which hinders the success of monetary policy in such countries. 2009, Beck 2011). 3. Chacholiades, M. (1978) International Monetary Theory and Policy, McGraw–Hill, USA Google Scholar Chandavarkar, A. G. (1971) ‘Some Aspect of Interest Rate Policies in Less Developed Economies: The Experience in Selected Asian Countries’, IMF Staff Papers , 18 , 1 CrossRef Google Scholar The central bank cannot effectively implement the various credit control measures in the absence of well-organized money and capital markets. The monetary policy has the limited scope in the underdeveloped countries because of the following reasons In most underdeveloped countries, the banking system is underdeveloped. Monetary policy is an important tool of demand management in the economy and therefore of checking inflation. The main objective of monetary policy of an underdeveloped country is to achieve the high level of economic growth: For this purpose, the main objectives of monetary policy of a developing country should be as follows- The developed countries largely satisfy all the necessary prerequisites for the efficient functioning of the monetary policy, whereas the developing or underdeveloped economies normally lack these require­ments. Using the International Financial Statistics dataset published by the IMF, I test for the impact of the monetary policy instrument, the central bank’s nominal interest rate, on Underdeveloped countries do not have well developed and fully organized money and capital market. Above all, the growth objective of monetary policy in underdeveloped countries implies the promotional role of monetary authorities. The central bank, through its promotional role, develops the necessary banking infrastruc­ture. Limitations of Monetary Policy in Developing Economy (i) Underdeveloped Money and Capital Market. In the developed countries, the role of fiscal polity is to promote fall employment without Inflation through its spending and taxing powers. Introduction. Monetary policy refers to the adoption of suitable policy regarding interest rate and the availability of credit. ADVERTISEMENTS: The experience of underdeveloped countries reveals that monetary policy plays a limited role in such countries: The following arguments are given in support of this view. Additional Physical Format: Online version: Sethi, J.D. This question is particularly pressing for developing countries, where the channels of monetary policy are impeded by financial underdevelopment and weak institutions (Beck et al. In developing countries, institutional constraints hamper financial intermediation and public policy effectiveness (Beck et al., 2000; Levine et al., 2000).Monetary policy transmission, for instance, is hindered by weaknesses in the legal environment, underdeveloped financial markets, and concentrated banking systems (Mishra et al., 2014). Role of Fiscal Policy: The role of fiscal policy in less developed countries differs from that in developed countries. monetary policy effectiveness of less developed economies using a panel of underdeveloped and developing countries. 1. New York: Asia Pub. 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