What is the Most Effective Monetary Policy for Aid-Receiving Countries?
AbstractThis paper analyses how monetary policy can enhance the effectiveness of volatile aid fl ows. We find that monetary policy is effective in reducing trade balance volatility. We propose the following taxonomy, excluding the case of emergency assistance. Monetary policy should slow down consumption growth and build up international reserves when aid is abundant and deplete them to finance imports and support consumption when aid is scarce. If foreign aid also affects productivity growth, monetary policy should take this productivity effect into account in responding to aid flows.
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Bibliographic InfoPaper provided by United Nations, Department of Economics and Social Affairs in its series Working Papers with number 12.
Length: 16 pages
Date of creation: Feb 2006
Date of revision:
Aid effectiveness; monetary policy; real exchange rate; Dutch disease;
Find related papers by JEL classification:
- O11 - Economic Development, Technological Change, and Growth - - Economic Development - - - Macroeconomic Analyses of Economic Development
- O4 - Economic Development, Technological Change, and Growth - - Economic Growth and Aggregate Productivity
- O23 - Economic Development, Technological Change, and Growth - - Development Planning and Policy - - - Fiscal and Monetary Policy in Development
- E5 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit
- F35 - International Economics - - International Finance - - - Foreign Aid
This paper has been announced in the following NEP Reports:
- NEP-AFR-2006-08-26 (Africa)
- NEP-ALL-2006-08-26 (All new papers)
- NEP-CBA-2006-08-26 (Central Banking)
- NEP-DEV-2006-08-26 (Development)
- NEP-MAC-2006-08-26 (Macroeconomics)
- NEP-MON-2006-08-26 (Monetary Economics)
- NEP-SEA-2006-08-26 (South East Asia)
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