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Making and breaking monetary policy rules: the experience of African countries

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  • Dominique Guillaume
  • David Stasavage
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    Abstract

    This paper analyses the experience with rule-based monetary policy in African countries which have participated in monetary unions (CFA Franc Zone, Eastern African Currency Board and Rand Monetary Area). We show that African countries have generally lacked the domestic political institutions which would allow individual governments to tie their hands by establishing such rules. Monetary unions have proved to be an alternative possibility for credible commitment to sound macroeconomic policies, but only in cases where exit from a union is made costly by the provision of side-payments (or sanctions) in other areas of regional co-operation, and only when governance structures have been designed so as to maximise chances for the enforcement of monetary rules. We conclude by making suggestions about the design of African monetary unions.

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    File URL: http://www.csae.ox.ac.uk/workingpapers/pdfs/9902text.PDF
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    Bibliographic Info

    Paper provided by Centre for the Study of African Economies, University of Oxford in its series CSAE Working Paper Series with number 1999-02.

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    Date of creation: 1999
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    Handle: RePEc:csa:wpaper:1999-02

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    1. Frankel, Jeffrey A. & Rose, Andrew K., 1997. "Economic Structure and the Decision to Adopt a Common Currency," Seminar Papers, Stockholm University, Institute for International Economic Studies 611, Stockholm University, Institute for International Economic Studies.
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    Cited by:
    1. Ethan Kapstein & Nathan Converse, 2006. "The Economics of Young Democracies: Policies and Performance," Working Papers, Center for Global Development 85, Center for Global Development.
    2. Kapstein, Ethan & Converse, Nathan, 2006. "The Economics of Young Democracies: Policies and Performance," MPRA Paper 553, University Library of Munich, Germany.
    3. Guillaume, Dominique M. & Stasavage, David, 2000. "Improving Policy Credibility: Is There a Case for African Monetary Unions?," World Development, Elsevier, Elsevier, vol. 28(8), pages 1391-1407, August.

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