Woodford goes to Africa
AbstractThis paper analyses the effects of inflation shocks, demands shocks, and aid shocks on low-income, quasi-emerging-market economies, and discusses how monetary policy can be used to manage these effects. We make use of a model developed for such economies by Adam et al. (2007). We examine the e¤ects of four things which this model features, which we take to be typical of such economies. These are: the existence of a tradeables/non-tradeables production structure, the fact that international capital movements are - at least initially - confined to the effects of currency substitution by domestic residents, the use of targets for financial assets in the implementation of monetary policy, and the pursuit, in some countries, of a fixed exchange rate. We then modify the model to examine the effect on such economies of three major changes, changes which we take to be part of the transition by such economies towards more fully- fledged emerging-market status: an opening of the capital account so that uncovered- interest-parity comes to hold, a move to floating exchange rates, and the replacement of fixed stocks of financial aggregates by the pursuit of a Taylor rule in the conduct of monetary policy.
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Bibliographic InfoPaper provided by ESRC World Economy and Finance Research Programme, Birkbeck, University of London in its series WEF Working Papers with number 0029.
Date of creation: Jul 2007
Date of revision:
currency substitution; emerging market macroeconomics; interactions between fiscal and monetary policy; Taylor rule;
Find related papers by JEL classification:
- E5 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit
- E61 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Policy Objectives; Policy Designs and Consistency; Policy Coordination
- O11 - Economic Development, Technological Change, and Growth - - Economic Development - - - Macroeconomic Analyses of Economic Development
This paper has been announced in the following NEP Reports:
- NEP-AFR-2007-12-08 (Africa)
- NEP-ALL-2007-12-08 (All new papers)
- NEP-CBA-2007-12-08 (Central Banking)
- NEP-MAC-2007-12-08 (Macroeconomics)
- NEP-MON-2007-12-08 (Monetary Economics)
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.:
- Ale Bulir & A. Javier Hamann, 2003. "Aid Volatility: An Empirical Assessment," IMF Staff Papers, Palgrave Macmillan, vol. 50(1), pages 4.
- Catherine A. Pattillo & Stephen A. O'Connell & Christopher Adam & Edward F. Buffie, 2004.
"Exchange Rate Policy and the Management of Official and Private Capital Flows in Africa,"
IMF Working Papers
04/216, International Monetary Fund.
- 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, vol. 51(s1), pages 126-160, June.
- Carlos A. VÃ©gh Gramont & Guillermo Calvo & Carmen Reinhart, 1994.
"Targeting the Real Exchange Rate: Theory and Evidence,"
IMF Working Papers
94/22, International Monetary Fund.
- Calvo, Guillermo A. & Reinhart, Carmen M. & Vegh, Carlos A., 1995. "Targeting the real exchange rate: theory and evidence," Journal of Development Economics, Elsevier, vol. 47(1), pages 97-133, June.
- Reinhart, Carmen & Calvo, Guillermo & Vegh, Carlos, 1994. "Targeting the real exchange rate: Theory and evidence," MPRA Paper 13412, University Library of Munich, Germany.
- Bulír, Ales & Hamann, A. Javier, 2008.
"Volatility of Development Aid: From the Frying Pan into the Fire?,"
Elsevier, vol. 36(10), pages 2048-2066, October.
- A. Javier Hamann & Ales Bulir, 2006. "Volatility of Development Aid: From the Frying Pan Into the Fire?," IMF Working Papers 06/65, International Monetary Fund.
- Tatiana Kirsanova & Sven Jari Stehn & David Vines, 2005. "The Interactions between Fiscal Policy and Monetary Policy," Oxford Review of Economic Policy, Oxford University Press, vol. 21(4), pages 532-564, Winter.
- Calvo, Guillermo A., 1983. "Staggered prices in a utility-maximizing framework," Journal of Monetary Economics, Elsevier, vol. 12(3), pages 383-398, September.
- Christopher Adam & Stephen O'Connell & Edward Buffie, 2008. "Aid volatility, monetary policy rules and the capital account in African economies," WEF Working Papers 0037, ESRC World Economy and Finance Research Programme, Birkbeck, University of London.
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