Riding the Wave: Monetary Responses to Aid Surges in Low-Income Countries
AbstractWe 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 beneficient 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.
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Bibliographic InfoPaper provided by University of Oxford, Department of Economics in its series Economics Series Working Papers with number WPS/2006-04.
Date of creation: 01 Jan 2006
Date of revision:
Aid; Sterilization; Currency substitution; Seigniorage; Africa;
Find related papers by JEL classification:
- O12 - Economic Development, Technological Change, and Growth - - Economic Development - - - Microeconomic Analyses of Economic Development
- O23 - Economic Development, Technological Change, and Growth - - Development Planning and Policy - - - Fiscal and Monetary Policy in Development
- F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics
- C61 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Optimization Techniques; Programming Models; Dynamic Analysis
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- Christopher Adam & Stephen O’Connell & Edward Buffie, 2007.
"Monetary Policy Rules For Manging Aid Surges In Africa,"
WEF Working Papers
0016, ESRC World Economy and Finance Research Programme, Birkbeck, University of London.
- Christopher Adam & Stephen O'Connell & Edward Buffie & Catherine Pattillo, 2009. "Monetary Policy Rules for Managing Aid Surges in Africa," Review of Development Economics, Wiley Blackwell, vol. 13(s1), pages 464-490, 08.
- Adam, Christopher S. & Buffie, Edward & O'Connell, Stephen & Pattillo, Catherine, 2008. "Monetary Policy Rules for Managing Aid Surges in Africa," Working Papers RP2008/77, World Institute for Development Economic Research (UNU-WIDER).
- 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 07/180, International Monetary Fund.
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