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Africa's rising inflation : causes, consequences, and cures

  • Chhibber, Ajay
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    This paper provides an analytical and selective empirical survey of inflation in sub-Saharan Africa. It begins with an empirical assessment of inflation in Africa using various price indicators, and then looks at the major instruments of anti-inflationary policy. Instead of listing each instrument, the paper attempts to distinguish countries by broad policy regimes into four categories. A common generalized model of inflation is set-up, and each policy regime is shown to be a special case of that general model. The four prototypes classified are: (a) the CFA franc zone model of pegged exchange rates, open capital account and no price controls; (b) fixed-but-adjusting exchange rates, with closed capital account and some selective price controls; (c) fixed-but-adjusting exchange rates with widespread parallel markets, closed capital account and selective price controls; and (d) dual exchange rates, closed capital account but with extensive and effective pricecontrols. It uses the results from various empirical studies to examine the issues of policy coordination and sequencing that arise under each of the policy regimes. The paper particularly focuses on the interaction of exchange rate policy and inflation in view of the recent debate on this subject. It also examines the question of unravelling price controls and its implication for exchange rate, monetary and fiscal policy and financial sector reforms.

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    Paper provided by The World Bank in its series Policy Research Working Paper Series with number 577.

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    Date of creation: 28 Feb 1991
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    Handle: RePEc:wbk:wbrwps:577
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    1. Feltenstein, Andrew & Ha, Jiming, 1991. "Measurement of repressed inflation in China : The lack of coordination between monetary policy and price controls," Journal of Development Economics, Elsevier, vol. 36(2), pages 279-294, October.
    2. Blejer, Mario I. & Cheasty, Adrienne, 1988. "High inflation, heterodox stabilization, and fiscal policy," World Development, Elsevier, vol. 16(8), pages 867-881, August.
    3. Honohan, Patrick, 1990. "Price and monetary convergence in currency unions : the Franc and Rand zones," Policy Research Working Paper Series 390, The World Bank.
    4. Saini, Krishan G., 1982. "The monetarist explanation of inflation: The experience of six Asian countries," World Development, Elsevier, vol. 10(10), pages 871-884, October.
    5. Feltenstein, Andrew & Farhadian, Ziba, 1987. "Fiscal Policy, Monetary Targets, and the Price Level in a Centrally Planned Economy: An Application to the Case of China," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 19(2), pages 137-56, May.
    6. Devarajan, Shantayanan & de Melo, Jaime, 1987. "Evaluating participation in African monetary unions: A statistical analysis of the CFA Zones," World Development, Elsevier, vol. 15(4), pages 483-496, April.
    7. Kiguel, Miguel A & Liviatan, Nissan, 1988. "Inflationary Rigidities and Orthodox Stabilization Policies: Lessons from Latin America," World Bank Economic Review, World Bank Group, vol. 2(3), pages 273-98, September.
    8. Dornbusch, Rudiger, et al, 1983. "The Black Market for Dollars in Brazil," The Quarterly Journal of Economics, MIT Press, vol. 98(1), pages 25-40, February.
    9. Glytsos, Nicholas P., 1977. "Determinants of wage and price changes in less developed countries : An intertemporal cross-country analysis," Journal of Development Economics, Elsevier, vol. 4(4), pages 315-342, November.
    10. Honohan, Patrick, 1990. "Monetary cooperation in the CFA zone," Policy Research Working Paper Series 389, The World Bank.
    11. Devarajan, Shantayanan & de Melo, Jaime, 1990. "Membership in the CFA zone : Odyssean journey or Trojan horse?," Policy Research Working Paper Series 482, The World Bank.
    12. Darrat, Ali F., 1986. "Money, inflation, and causality in the North African Countries: An empirical investigation," Journal of Macroeconomics, Elsevier, vol. 8(1), pages 87-103.
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