Monetary policy rules for managing aid surges in Africa

Arbeitspapier

We examine the properties of alternative monetary policy rules in response to large aid surges in low-income countries characterized by incomplete capital market integration and currency substitution. Using a dynamic stochastic general equilibrium model, we show that simple monetary rules that stabilize the path of expected future seigniorage for a given aid flow have attractive properties relative to a range of conventional alternatives, including those involving heavy reliance on bond sterilization or a commitment to a pure exchange rate float. These simple rules, which are shown to be robust across a range of fiscal responses to aid inflows, appear to be consistent with actual responses to recent aid surges in a range of post-stabilization countries in Sub-Saharan Africa.

Object Details

• ISBN: 978-92-9230-131-6
• Language: Englisch

References and Relationships

• Bibliographic citation: Series: WIDER Research Paper ; No. 2008/77

Classification and Topics

• Classification: Wirtschaft ; Fiscal and Monetary Policy in Development ; Monetary Policy ; Foreign Exchange ; Foreign Aid
• Subject: monetary policy ; currency substitution ; aid ; Africa ; DSGE models ; Geldpolitik ; Entwicklungshilfe ; Dynamisches Gleichgewicht ; Afrika

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Adam, Christopher ; Buffie, Edward ; O'Connell, Stephen ; Pattillo, Catherine
• Event: Veröffentlichung
• (who): The United Nations University World Institute for Development Economics Research (UNU-WIDER)
• (where): Helsinki
• (when): 2008

Further information

• Handle: http://hdl.handle.net/10419/45052
• Last update: 10.03.2025, 11:46 AM CET