ABSTRACT
Summary: This paper evaluates the potential for autonomous monetary policy in small developing countries (SDCs) in general, and Jamaica in particular. Monetary policies based on the traditions and conditions in the advanced countries have only limited applicability in the SDCs and existing monetary theory is inadequate to cope with their problems. Smallness however has both advantages and disadvantages, and the major limitations to autonomous monetary policy in the SDCs are due not so much to smallness but rather to the structural rigidities which are found in these economies. The potential for autonomous monetary policy resides in skilful manipulation of the ‘control’ variables and in the process of economic integration. Monetary policy in the SDCs therefore has to operate at two levels-first to service the existing system of production and exchange, and secondly to manage money and credit in such a way as to facilitate the process of structural transformation and economic integration.
