Monetary policy for inclusive and sustainable development

This chapter seeks to critically evaluate the restrictive monetary policy stance generally recommended by the IMF, and provide a framework for monetary policy for inclusive and sustainable development. The chapter begins with a brief overview of the evolution of monetary policy objectives. It is followed, in Section 3, by a critical review of both theoretical and empirical literature on the channels through which monetary policy can affect growth and poverty. Section 4 critically assesses the wisdom and effectiveness of inflation targeting monetary policy and central bank independence in developing countries. It reflects on issues such as a potential contradiction between democratic governance and technocratic insulation of an institution in charge of monetary policy, and the political economy of the choice of weights between employment and price stabilisation for social welfare. A summary and policy recommendations are presented in Section 5.