Author

Nephil Matangi Maskay

Abstract

Hypothesis testing identifies a set of significant variables that appear to influence Nepal’s monetary policy. After finding a structural break in 1989 (in line with the political regime shift), lagged Indian monetary base and the official exchange rate have respective negative and positive effects on Nepalese monetary base growth. This supports earlier results which indicate that the Nepalese monetary authority plays a stabilizing role given that both countries do not face symmetric shocks and have a well behaved (hard) pegged exchange rate, and is consistent with the policy of the Nepalese monetary authority.