How does monetary policy work in Solomon Islands?

Abstract

This article examines how the monetary policy tools employed by the Central Bank of Solomon Islands worked to achieve its mandated objectives of maintaining price and exchange rate stability during a 28-year period (1980-2007). The findings show that, given the current undeveloped status of the money market in Solomon Islands, monetary impulses are transmitted to the real sector predominantly through the money channel rather than through the interest rate channel. Until effective inter-bank activities develop and open market operations in central bank bills become regular enough to influence short-term market interest rates by injecting or mopping up excess liquidity, the central bank will have to depend on direct instruments aimed at monetary aggregates. Show more