Advanced Search
MyIDEAS: Login to save this paper or follow this series

Riding the Wave: Monetary Responses to Aid Surges in Low-Income Countries

Contents:

Author Info

  • Edward Buffie
  • Christopher Adam
  • Stephen O'Connell
  • Catherine Patillo

Abstract

We focus on the management of highly persistent shocks to aid flows, including HIPC or MDG-related increases in net flows, in the presence of currency substitution by the domestic private sector. Such shocks have beneficent long-run effects, but when currency substitution is high they can produce dramatic macroeconomic management problems in the short run. What is the appropriate mix of money and exchange rate targeting in such cases, and the role of temporary sterilization? We analyze these and related issues in an intertemporal optimizing model that allows a portion of aid to be devoted to reducing the government’s seigniorage requirement. Our results argue that a managed float, with little or no sterilization of increases in the monetary base, is the most attractive approach.

Download Info

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
File URL: http://www.csae.ox.ac.uk/workingpapers/pdfs/2006-04text.pdf
Download Restriction: no

Bibliographic Info

Paper provided by Centre for the Study of African Economies, University of Oxford in its series CSAE Working Paper Series with number 2006-04.

as in new window
Length:
Date of creation: 2006
Date of revision:
Handle: RePEc:csa:wpaper:2006-04

Contact details of provider:
Postal: Manor Road, Oxford, OX1 3UQ
Phone: +44-(0)1865 271084
Fax: +44-(0)1865 281447
Email:
Web page: http://www.csae.ox.ac.uk/
More information through EDIRC

Related research

Keywords: Aid; Sterilization; Currency Substitution; Seigniorage; Africa;

Other versions of this item:

Find related papers by JEL classification:

References

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
as in new window
  1. Reinhart, Carmen & Calvo, Guillermo & Leiderman, Leonardo, 1994. "The capital inflows problem: Concepts and issues," MPRA Paper 13902, University Library of Munich, Germany.
  2. Jeffrey A. Frankel., 1993. "Sterilization of Money Inflows: Difficult (Calvo) or Easy (Reisen)?," Center for International and Development Economics Research (CIDER) Working Papers, University of California at Berkeley C93-024, University of California at Berkeley.
  3. Reinhart, Carmen & Ogaki, Masao & Ostry, Jonathan, 1996. "Saving Behavior in Low- and Middle-Income Developing Countries: A Comparison," MPRA Paper 6978, University Library of Munich, Germany.
  4. Guillermo A. Calvo & Carmen M. Reinhart, 2002. "Fear Of Floating," The Quarterly Journal of Economics, MIT Press, MIT Press, vol. 117(2), pages 379-408, May.
  5. Reinhart, Carmen & Calvo, Guillermo & Vegh, Carlos, 1994. "Targeting the real exchange rate: Theory and evidence," MPRA Paper 13412, University Library of Munich, Germany.
  6. Edward F. Buffie & Stephen A. O'Connell & Catherine A. Pattillo & Christopher Adam, 2007. "Monetary Policy Rules for Managing Aid Surges in Africa," IMF Working Papers, International Monetary Fund 07/180, International Monetary Fund.
  7. Svensson, Lars E O, 1998. "Open-Economy Inflation Targeting," CEPR Discussion Papers, C.E.P.R. Discussion Papers 1989, C.E.P.R. Discussion Papers.
  8. Burnside, Craig & Fanizza, Domenico, 2001. "Hiccups for HIPCs?," Working Paper Series, World Institute for Development Economic Research (UNU-WIDER) UNU-WIDER Research Paper , World Institute for Development Economic Research (UNU-WIDER).
  9. Adam, Christopher, 1999. "Financial Liberalisation and Currency Demand in Zambia," Journal of African Economies, Centre for the Study of African Economies (CSAE), Centre for the Study of African Economies (CSAE), vol. 8(3), pages 268-306, October.
  10. Buffie, Edward F. & O'Connell, Stephen A. & Adam, Christopher, 2010. "Fiscal inertia, donor credibility, and the monetary management of aid surges," Journal of Development Economics, Elsevier, Elsevier, vol. 93(2), pages 287-298, November.
  11. Edward Buffie & Christopher Adam & Stephen O'Connell & Catherine Pattillo, 2004. "Exchange Rate Policy and the Management of Official and Private Capital Flows in Africa," IMF Staff Papers, Palgrave Macmillan, Palgrave Macmillan, vol. 51(s1), pages 126-160, June.
  12. A. Javier Hamann & Ales Bulir, 2001. "How Volatile and Unpredictable Are Aid Flows, and What Are the Policy Implications?," IMF Working Papers, International Monetary Fund 01/167, International Monetary Fund.
  13. Deaton,Angus & Muellbauer,John, 1980. "Economics and Consumer Behavior," Cambridge Books, Cambridge University Press, Cambridge University Press, number 9780521296762.
  14. Krishna Srinivasan & Erich Spitäller & M. Braulke & Christian B. Mulder & Hisanobu Shishido & Kenneth M. Miranda & John Dodsworth & Keon Lee, 1996. "Vietnam," IMF Occasional Papers, International Monetary Fund 135, International Monetary Fund.
  15. Reinhart, Carmen & Calvo, Guillermo, 2001. "Fixing for your life," MPRA Paper 13873, University Library of Munich, Germany.
  16. Asea, Patrick K & Reinhart, Carmen M, 1996. "Le Prix de l'Argent: How (Not) to Deal with Capital Inflows," Journal of African Economies, Centre for the Study of African Economies (CSAE), Centre for the Study of African Economies (CSAE), vol. 5(3), pages 231-71, October.
  17. Fedderke, J. W. & Liu, W., 2002. "Modelling the determinants of capital flows and capital flight: with an application to South African data from 1960 to 1995," Economic Modelling, Elsevier, Elsevier, vol. 19(3), pages 419-444, May.
  18. Léonce Ndikumana & James K. Boyce, 2002. "Public Debts and Private Assets: Explaining Capital Flight from Sub-Saharan African Countries," UMASS Amherst Economics Working Papers, University of Massachusetts Amherst, Department of Economics 2002-02, University of Massachusetts Amherst, Department of Economics.
  19. David Fielding, 1994. "Money Demand in Four African Countries," Journal of Economic Studies, Emerald Group Publishing, Emerald Group Publishing, vol. 21(2), pages 3-37, May.
  20. Calvo, Guillermo A., 1983. "Staggered prices in a utility-maximizing framework," Journal of Monetary Economics, Elsevier, Elsevier, vol. 12(3), pages 383-398, September.
  21. Christopher Adam & David Bevan, 2003. "Aid, Public Expenditure and Dutch Disease," CSAE Working Paper Series, Centre for the Study of African Economies, University of Oxford 2003-02, Centre for the Study of African Economies, University of Oxford.
  22. Blundell, Richard, 1988. "Consumer Behaviour: Theory and Empirical Evidence--a Survey," Economic Journal, Royal Economic Society, Royal Economic Society, vol. 98(389), pages 16-65, March.
  23. Adam, Christopher S. & Bevan, David L., 2001. "Fiscal Policy Design in Low-Income Countries," Working Paper Series, World Institute for Development Economic Research (UNU-WIDER) UNU-WIDER Research Paper , World Institute for Development Economic Research (UNU-WIDER).
  24. Alfonso Novales & Emilio Dominguez & Javier J. Perez & Jesus Ruiz, 1998. "Solving Non-linear Rational Expectations Models By Eigenvalue-Eigenvector Decompositions," QM&RBC Codes, Quantitative Macroeconomics & Real Business Cycles 124, Quantitative Macroeconomics & Real Business Cycles.
  25. C. L. Ramirez-Rojas, 1985. "Currency Substitution in Argentina, Mexico, and Uruguay (Substitution de monnaie en Argentine, au Mexique et en Uruguay) (Sustitución de moneda en Argentina, México y Uruguay)," IMF Staff Papers, Palgrave Macmillan, Palgrave Macmillan, vol. 32(4), pages 629-667, December.
  26. Benedict J. Clements & Sanjeev Gupta & Emanuele Baldacci & Carlos Mulas-Granados, 2002. "Expenditure Composition, Fiscal Adjustment, and Growth in Low-Income Countries," IMF Working Papers, International Monetary Fund 02/77, International Monetary Fund.
Full references (including those not matched with items on IDEAS)

Citations

Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
as in new window

Cited by:
  1. Hisali, Eria, 2010. "Fiscal policy consistency and implications for macroeconomic aggregates: the case of Uganda," Research Reports, Economic Policy Research Centre (EPRC) 102489, Economic Policy Research Centre (EPRC).
  2. Plante, Michael, 2014. "The long-run macroeconomic impacts of fuel subsidies," Journal of Development Economics, Elsevier, Elsevier, vol. 107(C), pages 129-143.
  3. Andrew Berg & Rafael A Portillo & Luis-Felipe Zanna, 2014. "Policy Responses to Aid Surges in Countries with Limited International Capital Mobility: The Role of the Exchange Rate Regime," IMF Working Papers, International Monetary Fund 14/18, International Monetary Fund.
  4. Pedro M. G. Martins, 2010. "Do Capital Inflows Hinder Competitiveness? The Real Exchange Rate in Ethiopia," Working Paper Series, Department of Economics, University of Sussex 1110, Department of Economics, University of Sussex.
  5. Michael Plante Author-X-Name-First: Michael Author-X-Name-Last: Plante, 2013. "TheLong-RunMacroeconomicImpactsofFuelSubsidies," Caepr Working Papers, Center for Applied Economics and Policy Research, Economics Department, Indiana University Bloomington 2013-002, Center for Applied Economics and Policy Research, Economics Department, Indiana University Bloomington.
  6. Pedro M G Martins, . "Capital Inflows Hinder Competitiveness? The Real Exchange Rate in Ethiopia," Discussion Papers, University of Nottingham, CREDIT 10/07, University of Nottingham, CREDIT.
  7. Hisali, Eria, 2010. "Fiscal policy consistency and its implications for macroeconomic aggregates: The case of Uganda," Research Series, Economic Policy Research Centre (EPRC) 113615, Economic Policy Research Centre (EPRC).
  8. Christopher Adam & Stephen O’Connell & Edward Buffie, 2007. "Monetary Policy Rules For Manging Aid Surges In Africa," WEF Working Papers, ESRC World Economy and Finance Research Programme, Birkbeck, University of London 0016, ESRC World Economy and Finance Research Programme, Birkbeck, University of London.
  9. Rafael Portillo & Andrew Berg & Jan Gottschalk & Luis-Felipe Zanna, 2010. "The Macroeconomics of Medium-Term Aid Scaling-Up Scenarios," IMF Working Papers, International Monetary Fund 10/160, International Monetary Fund.
  10. Buffie, Edward F. & O'Connell, Stephen A. & Adam, Christopher, 2010. "Fiscal inertia, donor credibility, and the monetary management of aid surges," Journal of Development Economics, Elsevier, Elsevier, vol. 93(2), pages 287-298, November.

Lists

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

Statistics

Access and download statistics

Corrections

When requesting a correction, please mention this item's handle: RePEc:csa:wpaper:2006-04. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Richard Payne).

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.