While economies in transition are not devoid of their monetary policy models, the changes desired in the functioning of these economies may necessitate innovations to administer monetary policy models that are consistent with the newly established goals. Although some goals may essentially be the same (e.g., full employment or price stability), the instruments for achieving those goals may not be available. The variety of approaches to a monetary policy are presented in this article. However, while several operating models are discussed, it is made clear that the approach adopted by an economy in transition has to be consistent with the institutional structures in place. The recommended path for policymaking begins with an assessment of the institutional setting and the economic philosophy of the country in transition. This is followed by an information approach which focuses on the objectives and goal variables, monetary policy models, the effect of changing conditions, the role of central banks, integration of monetary and fiscal policies, institutional design for monetary stability, alternative model variables, implications of monetarism, and a concluding caveat on monetary control.

Monetary policy is aimed at influencing the quantity or the price of the medium of exchange and implemented by national governments for a variety of reasons. Some governments use monetary policy in an effort to combat inflation and stabilize prices while others focus on the economic growth, unemployment, and balance of payments (the strength of the currency). While economies in transition are not devoid of monetary policy, changes desired in the functioning of these economies may necessitate innovations to administer monetary policy, consistent with newly established goals. Although some goals may essentially be the same (e.g., full employment or price stability), the instruments for achieving those goals may not be present.

There are a variety of approaches to achieve some degree of control of the money supply; however, economies in transition simply cannot adopt any approach at random. The approach adopted has to be consistent with institutional structures in place (e.g., the role of banks; the existence/non-existence of a capital market; the manner in which the existing capital market functions; and business practices in terms of credit administration).

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