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The Macroeconomics of Scaling Up Aid

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Author Info

  • Andrew Berg
  • Mumtaz Hussain
  • Shaun K. Roache
  • Amber Mahone
  • Tokhir N. Mirzoev
  • Shekhar Aiyar

Abstract

This study analyzes key issues associated with large increases in aid, including absorptive capacity, Dutch disease, and inflation. The authors develop a framework that emphasizes the different roles of monetary and fiscal policy and apply it to the recent experience of five countries: Ethiopia, Ghana, Mozambique, Tanzania, and Uganda. These countries have often found it difficult to coordinate monetary and fiscal policy in the face of conflicting objectives, notably to spend the aid money on domestic goods and to avoid excessive exchange rate appreciation.

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Bibliographic Info

Paper provided by International Monetary Fund in its series IMF Occasional Papers with number 253.

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Length: 114
Date of creation: 23 Mar 2007
Date of revision:
Handle: RePEc:imf:imfocp:253

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Related research

Keywords: Absorptive capacity; exchange rate; foreign exchange; inflation; real exchange rate; monetary policy; effective exchange rate; real effective exchange rate; terms of trade; nominal exchange rate; money growth; exchange rate appreciation; money supply; foreign exchange sales; exchange sales; exchange rates; real exchange rate appreciation; aggregate demand; foreign currency; foreign exchange market; inflationary pressures; current account balance; nominal effective exchange rate; high inflation; real interest rates; real exchange rates; macroeconomic stability; exchange rate policy; inflation tax; effective exchange rates; nominal interest rates; exchange rate regime; currency substitution; lower inflation; exchange rate depreciation; real money; rate of inflation; increase in inflation; exchange rate peg; exchange rate movements; high interest rates; exchange reserves; price level; low inflation; rise in inflation; price inflation; currency depreciation; macroeconomic performance; foreign exchange reserves; inflation stabilization; price stability; exchange rate overshooting; exchange rate management; relative price; exchange rate policies; real value; nominal variables; monetary economics; exchange rate appreciations; nominal exchange rate depreciation; inflationary impact; real wages; real effective exchange rates; monetary financing; real exchange rate appreciations; exchange rate misalignment; real money supply; nominal exchange rates; independent central bank; financial stability; exchange rate regimes; exchange rate stability; inflation rate; real exchange rate misalignment; inflationary expectations; real exchange rate overshooting; real rates; exchange rate depreciations; printing money; real exchange rate movements; exchange rate flexibility; floating exchange rate; exchange rate volatility; floating exchange rate regime; relative prices; nominal exchange rate stability; exchange rate dynamics; exchange rate adjustment; exchange rate channel; foreign exchange markets; fall in inflation; inflationary pressure; exchange rate overvaluations; inflation rates; low rate of inflation; dollar value; exchange markets;

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Citations

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Cited by:
  1. Pedro M. G. Martins, 2010. "Aid Absorption and Spending in Africa: A Panel Cointegration Approach," Working Paper Series 1010, Department of Economics, University of Sussex.
  2. Joannes Mongardini & Brett Rayner, 2009. "Grants, Remittances, and the Equilibrium Real Exchange Rate in Sub-Saharan African Countries," IMF Working Papers 09/75, International Monetary Fund.
  3. Devarajan, Shantayanan & Go, Delfin S. & Page, John & Robinson, Sherman & Thierfelder, Karen, 2008. "Aid, growth, and real exchange rate dynamics," Policy Research Working Paper Series 4480, The World Bank.
  4. Gupta, Sanjeev, 2008. "Enhancing Effective Utilization of Aid in Fragile States," Working Paper Series RP2008/07, World Institute for Development Economic Research (UNU-WIDER).
  5. Thomas William Dorsey & Zuzana Brixiova & Sukhwinder Singh & Helaway Tadesse, 2008. "The Landscape of Capital Flows to Low-Income Countries," IMF Working Papers 08/51, International Monetary Fund.
  6. Lone Engbo Christiansen & Alessandro Prati & Luca Antonio Ricci & Thierry Tressel, 2009. "External Balance in Low Income Countries," IMF Working Papers 09/221, International Monetary Fund.
  7. Bwire, Thomas & Morrissey, Oliver & Lloyd, Tim, 2013. "Foreign aid, public sector and private consumption: A cointegrated vector autoregressive approach," Working Paper Series UNU-WIDER Research Paper , World Institute for Development Economic Research (UNU-WIDER).
  8. Hansen, Henrik & Headey, Derek, 2009. "The short-run macroeconomic impact of foreign aid to small states: An agnostic time series analysis," IFPRI discussion papers 863, International Food Policy Research Institute (IFPRI).
  9. Shonchoy, Abu, 2010. "The Dynamics of Spending and Absorption of Aid: Panel Data Analysis," MPRA Paper 24530, University Library of Munich, Germany.
  10. Bwire, Thomas & Morrissey, Oliver & Lloyd, Tim, 2013. "A timeseries analysis of the impact of foreign aid on central government.s fiscal budget in Uganda," Working Paper Series UNU-WIDER Research Paper , World Institute for Development Economic Research (UNU-WIDER).
  11. Joannes Mongardini & Issouf Samaké, 2009. "The Macroeconomics of Scaling Up Aid," IMF Working Papers 09/115, International Monetary Fund.
  12. Strand, Jon, 2009. ""Revenue management"effects related to financial flows generated by climate policy," Policy Research Working Paper Series 5053, The World Bank.
  13. Luc Savard, 2010. "Scaling up infrastructure spending in the Philippines: A CGE top-down bottom-up microsimulation approach," International Journal of Microsimulation, Interational Microsimulation Association, vol. 3(1), pages 43-59.
  14. Niko Hobdari, 2008. "Tanzania's Equilibrium Real Exchange Rate," IMF Working Papers 08/138, International Monetary Fund.
  15. Mumtaz Hussain & Andrew Berg & Shekhar Aiyar, 2009. "The Macroeconomic Management of Increased Aid: Policy Lessons from Recent Experience," Review of Development Economics, Wiley Blackwell, vol. 13(s1), pages 491-509, 08.
  16. Pedro M G Martins, . "Aid Absorption and Spending in Africa: A Panel Cointegration Approach," Discussion Papers 10/06, University of Nottingham, CREDIT.

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