IDEAS home Printed from https://ideas.repec.org/p/ecb/ecbops/20070060.html
   My bibliography  Save this paper

Commodity price fluctuations and their impact on monetary and fiscal policies in Western and Central Africa

Author

Listed:
  • Uwe Böwer
  • André Geis
  • Adalbert Winkler

Abstract

Commodity prices play an important role in economic developments in most of the 24 Western and Central African (WCA) countries covered in this paper. It is confirmed that in the light of rising commodity prices between 1999 and 2005, net oil exporters recorded strong growth rates while net oil-importing countries – albeit benefiting from increases in their major non-oil commodity export prices – displayed somewhat lower growth. For most WCA economies, inflation rates appear less affected by commodity price changes and more determined by exchange rate regimes as well as monetary and fiscal policies. While passthrough effects from international to domestic energy prices were significant, notably in oilimporting countries, second-round effects on overall prices seem limited. Governments of oil-rich countries reacted prudently to windfall revenues, partly running sizable fiscal surpluses. A favourable supply response to rising spending as well as sterilisation efforts and increasing money demand also helped to dampen inflationary pressures. However, substantial excess reserves of commercial banks reflect challenges in financial sector developments and the effectiveness of monetary policy in many WCA countries. Given currently widelyused fixed exchange rate regimes, fiscal policy will continue to carry the main burden of macroeconomic adjustment and of sustaining non-inflationary growth, which remains the key policy challenge facing WCA authorities.

Suggested Citation

  • Uwe Böwer & André Geis & Adalbert Winkler, 2007. "Commodity price fluctuations and their impact on monetary and fiscal policies in Western and Central Africa," Occasional Paper Series 60, European Central Bank.
  • Handle: RePEc:ecb:ecbops:20070060
    as

    Download full text from publisher

    File URL: http://www.ecb.europa.eu/pub/pdf/scpops/ecbocp60.pdf
    Download Restriction: no

    References listed on IDEAS

    as
    1. Martin D. D. Evans, 1998. "Real Rates, Expected Inflation, and Inflation Risk Premia," Journal of Finance, American Finance Association, vol. 53(1), pages 187-218, February.
    2. Campbell, John Y. & Chan, Yeung Lewis & Viceira, Luis M., 2003. "A multivariate model of strategic asset allocation," Journal of Financial Economics, Elsevier, vol. 67(1), pages 41-80, January.
    3. De Gregorio, Jose & Giovannini, Alberto & Wolf, Holger C., 1994. "International evidence on tradables and nontradables inflation," European Economic Review, Elsevier, pages 1225-1244.
    4. Nicholas Taylor, 2000. "US inflation-indexed bonds in the long run: a hypothetical view," Applied Financial Economics, Taylor & Francis Journals, pages 667-677.
    5. Samuelson, Larry, 1988. "On the Effects of Indexed Bonds in Developing Countries," Oxford Economic Papers, Oxford University Press, vol. 40(1), pages 168-192, March.
    6. Alan D. Viard, 1993. "The welfare gain from the introduction of indexed bonds," Proceedings, Federal Reserve Bank of Cleveland, pages 612-635.
    7. LuisM. Viceira & John Y. Campbell, 2001. "Who Should Buy Long-Term Bonds?," American Economic Review, American Economic Association, pages 99-127.
    8. LuisM. Viceira & John Y. Campbell, 2001. "Who Should Buy Long-Term Bonds?," American Economic Review, American Economic Association, pages 99-127.
    9. Alicia H. Munnell & Joseph B. Grolnic, 1986. "Should the U.S. government issue index bonds?," New England Economic Review, Federal Reserve Bank of Boston, issue Sep, pages 3-21.
    10. Don H. Kim & Jonathan H. Wright, 2005. "An arbitrage-free three-factor term structure model and the recent behavior of long-term yields and distant-horizon forward rates," Finance and Economics Discussion Series 2005-33, Board of Governors of the Federal Reserve System (U.S.).
    11. Nicola Anderson & John Sleath, 2001. "New estimates of the UK real and nominal yield curves," Bank of England working papers 126, Bank of England.
    12. Mark M. Spiegel, 1998. "Central bank independence and inflation expectations: evidence from British index-linked gilts," Economic Review, Federal Reserve Bank of San Francisco, pages 3-14.
    13. Brian P. Sack, 2000. "Deriving inflation expectations from nominal and inflation-indexed Treasury yields," Finance and Economics Discussion Series 2000-33, Board of Governors of the Federal Reserve System (U.S.).
    14. Thomas M. Hymphrey, 1974. "The concept of indexation in the history of economic thought," Economic Review, Federal Reserve Bank of Richmond, issue Nov, pages 1-16.
    15. Fischer, Stanley, 1975. "The Demand for Index Bonds," Journal of Political Economy, University of Chicago Press, vol. 83(3), pages 509-534, June.
    16. David Barr & John Campbell, "undated". "Inflation, real interest rates and the bond market: a study of UK nominal and index-linked Government bond prices," CERF Discussion Paper Series 95-09, Economics and Finance Section, School of Social Sciences, Brunel University.
    17. Pu Shen, 1995. "Benefits and limitations of inflation indexed Treasury bonds," Economic Review, Federal Reserve Bank of Kansas City, issue Q III, pages 41-56.
    18. Charles T. Carlstrom & Timothy S. Fuerst, 2004. "Expected inflation and TIPS," Economic Commentary, Federal Reserve Bank of Cleveland, issue Nov.
    19. Lahiri, Kajal & Teigland, Christie & Zaporowski, Mark, 1988. "Interest Rates and the Subjective Probability Distribution of Inflation Forecasts," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 20(2), pages 233-248, May.
    20. Francisco Alonso & Roberto Blanco & Ana del Río, 2001. "Estimating Inflation Expectations using French Government Inflation-Indexed Bonds," Working Papers 0111, Banco de España;Working Papers Homepage.
    21. Andrew Ang & Geert Bekaert, 2004. "The term structure of real rates and expected inflation," Proceedings, Federal Reserve Bank of San Francisco.
    22. Andrew Ang & Geert Bekaert & Min Wei, 2008. "The Term Structure of Real Rates and Expected Inflation," Journal of Finance, American Finance Association, vol. 63(2), pages 797-849, April.
    23. J. Huston McCulloch, 2001. "The Inflation Premium implicit in the US Real and Nominal," Computing in Economics and Finance 2001 210, Society for Computational Economics.
    24. Pu Shen & Jonathan Corning, 2001. "Can TIPS help identify long-term inflation expectations?," Economic Review, Federal Reserve Bank of Kansas City, issue Q IV, pages 61-87.
    25. Eli M. Remolona & Michael Wickens & Frank F. Gong, 1998. "What was the market's view of U.K. monetary policy? Estimating inflation risk and expected inflation with indexed bonds," Staff Reports 57, Federal Reserve Bank of New York.
    26. Francis Breedon & Jag Chadha, 1997. "The Information Content of the Inflation Term Structure," Bank of England working papers 75, Bank of England.
    27. Reschreiter, Andreas, 2004. "Conditional funding costs of inflation-indexed and conventional government bonds," Journal of Banking & Finance, Elsevier, vol. 28(6), pages 1299-1318, June.
    28. LuisM. Viceira & John Y. Campbell, 2001. "Who Should Buy Long-Term Bonds?," American Economic Review, American Economic Association, vol. 91(1), pages 99-127, March.
    29. William R. Emmons, 2000. "The information content of Treasury inflation-indexed securities," Review, Federal Reserve Bank of St. Louis, issue Nov, pages 25-38.
    30. Daniel F. Waggoner, 1997. "Spline methods for extracting interest rate curves from coupon bond prices," FRB Atlanta Working Paper 97-10, Federal Reserve Bank of Atlanta.
    31. Michael Gapen, 2003. "Seasonal indexation bias in US Treasury Inflation-indexed Securities," Applied Financial Economics, Taylor & Francis Journals, pages 509-516.
    32. Buraschi, Andrea & Jiltsov, Alexei, 2005. "Inflation risk premia and the expectations hypothesis," Journal of Financial Economics, Elsevier, vol. 75(2), pages 429-490, February.
    33. Kandel, Shmuel & Ofer, Aharon R & Sarig, Oded, 1996. " Real Interest Rates and Inflation: An Ex-Ante Empirical Analysis," Journal of Finance, American Finance Association, vol. 51(1), pages 205-225, March.
    34. Jeffrey M. Wrase, 1997. "Inflation-indexed bonds: how do they work?," Business Review, Federal Reserve Bank of Philadelphia, issue Jul, pages 3-16.
    35. Jeffrey D. Sachs & Aaron Tornell & Andrés Velasco, 1996. "Financial Crises in Emerging Markets: The Lessons from 1995," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, pages 147-216.
    36. Hunter, Delroy M. & Simon, David P., 2005. "Are TIPS the "real" deal?: A conditional assessment of their role in a nominal portfolio," Journal of Banking & Finance, Elsevier, vol. 29(2), pages 347-368, February.
    37. Bohn, Henning, 1988. "Why do we have nominal government debt?," Journal of Monetary Economics, Elsevier, vol. 21(1), pages 127-140, January.
    38. Paul Willen, 2005. "New financial markets: who gains and who loses," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 26(1), pages 141-166, July.
    39. Christensen, Ian & Frédéric Dion & Christopher Reid, 2004. "Real Return Bonds, Inflation Expectations, and the Break-Even Inflation Rate," Staff Working Papers 04-43, Bank of Canada.
    40. Liviatan, Nissan & Levhari, David, 1977. "Risk and the Theory of Indexed Bonds," American Economic Review, American Economic Association, pages 366-375.
    41. Cappiello, Lorenzo & Guéné, Stéphane, 2005. "Measuring market and inflation risk premia in France and in Germany," Working Paper Series 436, European Central Bank.
    42. Drudi, Francesco & Giordano, Raffaela, 2000. " Wage Indexation, Employment and Inflation," Scandinavian Journal of Economics, Wiley Blackwell, vol. 102(4), pages 645-668, December.
    43. John Y. Campbell & Robert J. Shiller, 1996. "A Scorecard for Indexed Government Debt," NBER Chapters,in: NBER Macroeconomics Annual 1996, Volume 11, pages 155-208 National Bureau of Economic Research, Inc.
    44. Missale, Alessandro, 1999. "Public Debt Management," OUP Catalogue, Oxford University Press, number 9780198290858.
    45. Robert Shiller, 2003. "The Invention of Inflation-Indexed Bonds in Early America," Yale School of Management Working Papers amz2611, Yale School of Management, revised 01 Mar 2004.
    46. Robert L. Hetzel, 1992. "Indexed bonds as an aid to monetary policy," Economic Review, Federal Reserve Bank of Richmond, issue Jan, pages 13-23.
    47. Richard W. Kopcke & Ralph C. Kimball, 1999. "Inflation-indexed bonds: the dog that didn't bark," New England Economic Review, Federal Reserve Bank of Boston, issue Jan, pages 3-24.
    48. Fischer, Stanley & Summers, Lawrence H, 1989. "Should Governments Learn to Live with Inflation?," American Economic Review, American Economic Association, pages 382-387.
    49. Evans, Martin D D & Lewis, Karen K, 1995. " Do Expected Shifts in Inflation Affect Estimates of the Long-Run Fisher Relation?," Journal of Finance, American Finance Association, vol. 50(1), pages 225-253, March.
    50. Frank F. Gong & Eli M. Remolona, 1996. "Inflation risk in the U.S. yield curve: the usefulness of indexed bonds," Research Paper 9637, Federal Reserve Bank of New York.
    51. Alan D. Viard, 1993. "The welfare gain from the introduction of indexed bonds," Proceedings, Federal Reserve Bank of Cleveland, pages 612-635.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. di Mauro, Filippo & Kaufmann, Robert K. & Karadeloglou, Pavlos, 2008. "Will oil prices decline over the long run?," Occasional Paper Series 98, European Central Bank.
    2. Irina Bunda, 2007. "The Changing Role of the Exchange Rate in a Globalised Economy," Post-Print halshs-00372820, HAL.
    3. Gómez-Salvador, Ramón & Leiner-Killinger, Nadine, 2008. "An analysis of youth unemployment in the euro area," Occasional Paper Series 89, European Central Bank.
    4. Sturm, Michael & Adolf, Petra & Peschel, Dominik & Stráský, Jan, 2008. "The Gulf Cooperation Council countries: economic structures, recent developments and role in the global economy," Occasional Paper Series 92, European Central Bank.
    5. Blattner, Tobias & Catenaro, Marco & Ehrmann, Michael & Strauch, Rolf & Turunen, Jarkko, 2008. "The predictability of monetary policy," Occasional Paper Series 83, European Central Bank.
    6. Klaus Masuch & Ramon Gómez-Salvador & Nadine Leiner-Killinger & Rolf Strauch & Jarkko Turunen & Melanie Ward-Warmedinger & Jan De Mulder & Harald Stahl & Yvonne McCarthy & Daphne Nicolitsas & Aitor La, 2008. "Labour supply and employment in the euro area countries - developments and challenges," Occasional Paper Series 87, European Central Bank.
    7. K. Barhoumi & S. Benk & R. Cristadoro & A. Den Reijer & A. Jakaitiene & P. Jelonek & A. Rua & K. Ruth & C. Van Nieuwenhuyze & G. Rünstler, 2008. "Short-term forecasting of GDP using large monthly datasets – A pseudo real-time forecast evaluation exercise," Working Paper Research 133, National Bank of Belgium.
    8. Strauch, Rolf & Gómez-Salvador, Ramón & Ward-Warmedinger, Melanie & Turunen, Jarkko & Leiner-Killinger, Nadine & Task Force of the Monetary Policy Committee of the ESCB & Masuch, Klaus, 2008. "Labour supply and employment in the euro area countries: developments and challenges," Occasional Paper Series 87, European Central Bank.
    9. Filippo Di Mauro & Katrin Forster, "undated". "Globalisation and the competitiveness of the Euro area," Working Papers 5, Department of the Treasury, Ministry of the Economy and of Finance.
    10. Cappiello, Lorenzo & Ferrucci, Gianluigi, 2008. "The sustainability of China's exchange rate policy and capital account liberalisation," Occasional Paper Series 82, European Central Bank.
    11. De Santis, Roberto A. & Cappiello, Lorenzo & Baltzer, Markus & Manganelli, Simone, 2008. "Measuring financial integration in new EU Member States," Occasional Paper Series 81, European Central Bank.
    12. Winkler, Adalbert & Backé, Peter & Geis, André & Zumer, Tina & Bracke, Thierry & Habib, Maurizio Michael & Polgár, Éva Katalin & Chmielewski, Tomasz & Gardó, Sándor & de Lannoy, Anthony & Móré, Csaba , 2008. "Financial stability challenges in candidate countries managing the transition to deeper and more market-oriented financial systems," Occasional Paper Series 95, European Central Bank.
    13. Bastourre, Diego, 2008. "Cambio fundamental o especulación financiera en los mercados de commodities? Un modelo con ajuste no lineal al equilibrio
      [Structural break or financial speculation in commodity markets? A multivar
      ," MPRA Paper 9910, University Library of Munich, Germany.
    14. Mehl, Arnaud & Bussière, Matthieu, 2008. "China's and India's roles in global trade and finance: twin titans for the new millennium?," Occasional Paper Series 80, European Central Bank.
    15. Mayerlen, Frank & Sola, Pierre & Be Duc, Louis, 2008. "The monetary presentation of the euro area balance of payments," Occasional Paper Series 96, European Central Bank.
    16. Winkler, Adalbert & Polański, Zbigniew, 2008. "Russia, EU enlargement and the euro," Occasional Paper Series 93, European Central Bank.
    17. Poloni, Paolo & Agresti, Anna Maria & Baudino, Patrizia, 2008. "The ECB and IMF indicators for the macro-prudential analysis of the banking sector: a comparison of the two approaches," Occasional Paper Series 99, European Central Bank.
    18. Alisson Curátola de Melo, 2013. "Brazil’s Commodity Price Index," IFC Bulletins chapters,in: Bank for International Settlements (ed.), Proceedings of the Sixth IFC Conference on "Statistical issues and activities in a changing environment", Basel, 28-29 August 2012., volume 36, pages 217-227 Bank for International Settlements.
    19. Moutot, Philippe & Jung, Alexander & Mongelli, Francesco Paolo, 2008. "The working of the eurosystem: monetary policy preparations and decision-making - selected issues," Occasional Paper Series 79, European Central Bank.
    20. Sengupta, Jonaki & Nag, Ranjanendra Narayan & Goswami, Bhaskar, 2013. "Terms of trade, capital accumulation and the macro-economy in a developing country: a theoretical analysis," Studies in Agricultural Economics, Research Institute for Agricultural Economics, vol. 115(3), December.
    21. Diego Bastourre, 2008. "Inversores Financieros en los Mercados de Commodities: Un Modelo con Dinámica de Ajuste no Lineal al Equilibrio," Department of Economics, Working Papers 072, Departamento de Economía, Facultad de Ciencias Económicas, Universidad Nacional de La Plata.
    22. International Monetary Fund, 2007. "Implications of Oil Inflows for Savings and Reserve Management in the Cemac," IMF Working Papers 07/243, International Monetary Fund.
    23. Fidora, Michael & Beck, Roland, 2008. "The impact of sovereign wealth funds on global financial markets," Occasional Paper Series 91, European Central Bank.
    24. Morgese Borys, Magdalena & Polgár, Éva Katalin & Zlate, Andrei, 2008. "Real convergence and the determinants of growth in EU candidate and potential candidate countries: a panel data approach," Occasional Paper Series 86, European Central Bank.

    More about this item

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:ecb:ecbops:20070060. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Official Publications). General contact details of provider: http://edirc.repec.org/data/emieude.html .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.