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Rethinking Pro-Growth Monetary Policy in Africa: Monetarist versus Keynesian Approach

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  • NGUENA, CHRISTIAN LAMBERT

Abstract

The relative positive economic growth experienced by most African countries in the recent decade has come with insufficient demand stimulation. The concern of poverty at the forefront of economic policy, the need for inclusive growth and sustainable development, inter alia, brings forward the inevitable question of the monetary policy responsibility. Accordingly, the monetarist theory that focuses on price stability inherently neglects the demand stimulation aspect of economic prosperity. Since the mid 1980s, the monetarist school driven by its central aim of fighting inflation and maintaining credibility in markets and economic agents has been priority for monetary authorities (especially in Africa). To this effect, while good results in terms of inflation targeting has been achieved in many African countries; economic growth has sometimes been low. Hence, in light of the above, using a statistical and theoretical debate method, the Credible Monetary Policy (CMP) paradox is traceable to Africa. Accordingly, with the promising economic environment in Africa, we recommend the promotion of a monetary policy oriented toward improving economic growth under the constraint of price stability. In light of the above view, there are some note worthy signs such the recent decision by the two CFA zone central banks to either maintain interest rates at a low level or reduce it despite tightening measures of monetary policy taken by the European Central Bank (ECB) earlier in the year. In the same vein, the central bank of South Africa has maintained its policy of low interest rates with an objective of economic expansion. Since, the 2008 financial crisis, the consolidation of the Federal Reserve’s declared final objective of lowering interest rates and making emergency loans is an eloquent example to reassure African central banks in the choice of the pro-growth monetary policy option.

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Bibliographic Info

Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 52100.

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Date of creation: 08 Dec 2010
Date of revision: 08 Dec 2013
Publication status: Forthcoming in African Development Bank Economic Brief 6.4(2013): pp. 1-8
Handle: RePEc:pra:mprapa:52100

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Keywords: Pro growth monetary policy; CMP paradox; Financing enterprises; African central bank.;

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  1. Asongu, Simplice A, 2013. "How has politico-economic liberalization affected financial allocation efficiency? Fresh African evidence," MPRA Paper 44995, University Library of Munich, Germany.
  2. Simplice A, Asongu, 2012. "A Short-run Schumpeterian Trip to Embryonic African Monetary Zones," MPRA Paper 43190, University Library of Munich, Germany.
  3. Epstein, Gerald A., 2006. "Central Banks as Agents of Economic Development," Working Paper Series, World Institute for Development Economic Research (UNU-WIDER) RP2006/54, World Institute for Development Economic Research (UNU-WIDER).
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