The announcement by the Bank of Jamaica (BOJ) that it has increased interest rates in an effort to control inflation has raised eyebrows and initiated discussion among the public who are awaiting some understandable reason for the action. While the use of interest rate policy is a valid remedy for an economy that is overheating, it cannot be a one tool for all in its application.
Economies are not always similar in how they respond to monetary and, for that matter, fiscal policies. So, from a global perspective a single focus does not mean that all generic prescriptions will work for every patient, and that is a basically accepted principle in pharmaceuticals, research and application regimes. Their literature is required to show allergies, reactions, non-compatible drugs; and this serves to signify the acceptance that all humans are not identical.
International prescriptions for all countries in a generic way cannot be accurate and effective. An economy has mixed proportions of elements such as GDP; labour productivity; government policies on restrictions or easement; social and cultural acceptable norms; folklore; political cycles and popularity; undue sectoral pressure; exports vs imports; natural resources; levels of ownership; family structures; and many more potential variables.
The point is that one size does not fit all. Many people believe that this interest rate policy is the “brainchild of the IMF” and there have been decades of policies that have worked; others that have failed; yet some that have never been tried because of fear of political unpopularity. Somewhere in this milieu lies the truth of this interest rate rise, and we must analyze it properly.
A place to start must be the economy as this is the object of the BOJ’s control. Is it expansionary or contractionary in the view of the BOJ or IMF? In the situation of Jamaica, the size of the economy is broadly (perhaps not accurately) official; and unofficial (grey); and today a criminal ( yet to be described). Weighting related prescriptions cannot be calculated by not knowing or guessing an important variable.
We have no information from the IMF; BOJ; PIOJ; or STATIN that properly estimate or jointly analyze figures that are plausible. Most analyses are not done on a real-time basis, they’re often some months behind. The communications processes and lack of sufficient data collection and computer analysis seem to lag far behind “real time”.
Article & Photo from: Public Opinion