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on Central Banking |
| By: | Martin Ellison; Joseph Pearlman |
| Abstract: | Saddlepath learning occurs when agents know the form but not the coefficients of the sad?dlepath relationship defining rational expectations equilibrium. Under saddlepath learning, we obtain a completely general relationship between determinacy and e-stability, and generalise Min?imum State Variable results previously derived only under full information. When the system is determinate, we show that a learning process based on the saddlepath is always e-stable. When the system is indeterminate, we find there is a unique MSV solution that is iteratively e-stable. However, in this case there is a sunspot solution that is learnable as well. We conclude by demon?strating that our results hold for any information set. |
| Keywords: | e-stability, determinacy, learning, saddlepath stability. |
| JEL: | C60 E00 |
| Date: | 2010–02 |
| URL: | http://d.repec.org/n?u=RePEc:san:cdmacp:0710&r=cba |
| By: | Paul Levine; Joseph Pearlman; George Perendia; Bo Yang |
| Abstract: | We provide a tool for estimating DSGE models by Bayesian Maximum-likelihood meth?ods under very general information assumptions. This framework is applied to a New Keynesian model where we compare the standard approach, that assumes an informa?tional asymmetry between private agents and the econometrician, with an assumption of informational symmetry. For the former, private agents observe all state variables including shocks, whereas the econometrician uses only data for output, inflation and interest rates. For the latter both agents have the same imperfect information set and this corresponds to what we term the ¡®informational consistency principle¡¯. We first assume rational expectations and then generalize the model to allow some households and firms to form expectations adaptively. We find that in terms of model posterior probabilities, impulse responses, second moments and autocorrelations, the assumption of informational symmetry by rational agents significantly improves the model fit. We also find qualified empirical support for the heterogenous expectations model. |
| Keywords: | Imperfect Information, DSGE Model, Rational versus Adaptive Expectations, Bayesian Estimation. |
| JEL: | C11 C52 E12 E32 |
| Date: | 2010–02 |
| URL: | http://d.repec.org/n?u=RePEc:san:cdmawp:1002&r=cba |
| By: | N. Gregory Mankiw; Ricardo Reis |
| Abstract: | This paper surveys the research in the past decade on imperfect information models of aggregate supply and the Phillips curve. This new work has emphasized that information is dispersed and disseminates slowly across a population of agents who strategically interact in their use of information. We discuss the foundations on which models of aggregate supply rest, as well as the micro-foundations for two classes of imperfect information models: models with partial information, where agents observe economic conditions with noise, and models with delayed information, where they observe economic conditions with a lag. We derive the implications of these two classes of models for: the existence of a non-vertical aggregate supply, the persistence of the real effects of monetary policy, the difference between idiosyncratic and aggregate shocks, the dynamics of disagreement, and the role of transparency in policy. Finally, we present some of the topics on the research frontier in this area. |
| JEL: | D8 E1 E3 |
| Date: | 2010–02 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:15773&r=cba |
| By: | Vasco Cúrdia; Ricardo Reis |
| Abstract: | The dynamic stochastic general equilibrium (DSGE) models used to study business cycles typically assume that exogenous disturbances are independent first-order autoregressions. This paper relaxes this tight and arbitrary restriction by allowing for disturbances that have a rich contemporaneous and dynamic correlation structure. Our first contribution is a new Bayesian econometric method that uses conjugate conditionals to allow for feasible and quick estimation of DSGE models with correlated disturbances. Our second contribution is a reexamination of U.S. business cycles. We find that allowing for correlated disturbances resolves some conflicts between estimates from DSGE models and those from vector autoregressions and that a key missing ingredient in the models is countercyclical fiscal policy. According to our estimates, government spending and technology disturbances play a larger role in the business cycle than previously ascribed, while changes in markups are less important. |
| Keywords: | Business cycles ; Equilibrium (Economics) ; Bayesian statistical decision theory ; Vector autoregression ; Fiscal policy ; Government spending policy |
| Date: | 2010 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fednsr:434&r=cba |
| By: | Vasco Cúrdia; Ricardo Reis |
| Abstract: | The dynamic stochastic general equilibrium (DSGE) models that are used to study business cycles typically assume that exogenous disturbances are independent autoregressions of order one. This paper relaxes this tight and arbitrary restriction, by allowing for disturbances that have a rich contemporaneous and dynamic correlation structure. Our first contribution is a new Bayesian econometric method that uses conjugate conditionals to make the estimation of DSGE models with correlated disturbances feasible and quick. Our second contribution is a re-examination of U.S. business cycles. We find that allowing for correlated disturbances resolves some conflicts between estimates from DSGE models and those from vector autoregressions, and that a key missing ingredient in the models is countercyclical fiscal policy. According to our estimates, government spending and technology disturbances play a larger role in the business cycle than previously ascribed, while changes in markups are less important. |
| JEL: | E1 E3 |
| Date: | 2010–02 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:15774&r=cba |
| By: | Richard Dennis; Tatiana Kirsanova |
| Abstract: | Discretionary policymakers cannot manage private-sector expectations and cannot co- ordinate the actions of future policymakers. As a consequence, expectations traps and coordination failures can occur and multiple equilibria can arise. To utilize the explanatory power of models with multiple equilibria it is first necessary to understand how an economy arrives to a particular equilibrium. In this paper, we employ notions of robustness, learnability, and the potential for coalitions to motivate and develop a suite of equilibrium selection criteria. Central among these criteria are whether the equilibrium is learnable by private agents and jointly learnable by private agents and the policymaker. We use two New Keynesian policy models to identify the strategic interactions that give rise to multiple equilibria and to illustrate our equilibrium selection methods. Importantly, although the Pareto-preferred equilibrium is invariably an equilibrium identified by standard numerical iterative solution methods, unless it is learnable by private agents, we find little reason to expect coordination on that equilibrium. |
| Keywords: | Monetary policy ; Equilibrium (Economics) |
| Date: | 2010 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedfwp:2010-02&r=cba |
| By: | Troy Davig; Eric M. Leeper; Todd B. Walker |
| Abstract: | We develop a rational expectations framework to study the consequences of alternative means to resolve the "unfunded liabilities'' problem---unsustainable exponential growth in federal Social Security, Medicare, and Medicaid spending with no plan to finance it. Resolution requires specifying a probability distribution for how and when monetary and fiscal policies will change as the economy evolves through the 21st century. Beliefs based on that distribution determine the existence of and the nature of equilibrium. We consider policies that in expectation combine reaching a fiscal limit, some distorting taxation, modest inflation, and some reneging on the government's promised transfers. In the equilibrium, inflation-targeting monetary policy cannot successfully anchor expected inflation. Expectational effects are always present, but need not have large impacts on inflation and interest rates in the short and medium runs. |
| JEL: | E31 E6 E63 H6 |
| Date: | 2010–02 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:15782&r=cba |
| By: | Graciela L. Kaminsky |
| Abstract: | The latest boom in commodity prices fueled concerns about fiscal policies in commodity-exporting countries, with many claiming that it triggered loose fiscal policy and left no funds for a rainy day. This paper examines the links between fiscal policy and terms-of-trade fluctuations using a sample of 74 countries, both developed and developing. It finds evidence that booms in the terms of trade do not necessarily lead to larger government surpluses in developing countries, particularly in emerging markets and especially during capital flow bonanzas. This is not the case in OECD countries, where fiscal policy is of an acyclical nature. |
| JEL: | E3 E62 F41 |
| Date: | 2010–02 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:15780&r=cba |
| By: | Laurent Ferrara (CES - Centre d'économie de la Sorbonne - CNRS : UMR8174 - Université Panthéon-Sorbonne - Paris I, Banque de France - Business Conditions and Macroeconomic Forecasting Directorate); Dominique Guegan (CES - Centre d'économie de la Sorbonne - CNRS : UMR8174 - Université Panthéon-Sorbonne - Paris I, EEP-PSE - Ecole d'Économie de Paris - Paris School of Economics - Ecole d'Économie de Paris); Patrick Rakotomarolahy (CES - Centre d'économie de la Sorbonne - CNRS : UMR8174 - Université Panthéon-Sorbonne - Paris I) |
| Abstract: | This paper formalizes the process of forecasting unbalanced monthly datasets in order to obtain robust nowcasts and forecasts of quarterly gross domestic product (GDP) growth rate through a semi-parametric modeling. This innovative approach lies in the use of non-parametric methods, based on nearest neighbors and on radial basis function approaches, to forecast the monthly variables involved in the parametric modeling of GDP using bridge equations. A real-time experience is carried out on euro area vintage data in order to anticipate, with an advance ranging from 6 to 1 months, the GDP flash estimate for the whole zone. |
| Keywords: | euro area GDP • real-time nowcasting • forecasting • non-parametric methods |
| Date: | 2010 |
| URL: | http://d.repec.org/n?u=RePEc:hal:cesptp:halshs-00460461_v1&r=cba |
| By: | Jonsson, Thomas (National Institute of Economic Research); Österholm, Pär (National Institute of Economic Research) |
| Abstract: | This paper assesses the properties of survey-based inflation expectations in Sweden. The survey is conducted by Prospera once every quarter and consists of respondents from businesses and labour-market organisa-tions. The paper shows that inflation expectations measured in this sur-vey tend to be biased and inefficient forecasts of future inflation. Results also indicate that long-run inflation expectations are overly adaptive with respect to actual inflation. Finally, evaluations of forecast accuracy show that these inflation expectations are worse predictors of inflation than those of a professional forecasting institution and also typically outper-formed by a simple autoregressive model. Overall, our results indicate that economic agents’ expectations formation process is suboptimal and/or the survey fails to capture the true inflation expectations. |
| Keywords: | Survey data; Inflation targeting |
| JEL: | E52 |
| Date: | 2009–12–01 |
| URL: | http://d.repec.org/n?u=RePEc:hhs:nierwp:0114&r=cba |
| By: | Joshua Aizenman; Gurnain Kaur Pasricha |
| Abstract: | This note shows that the aggregate fiscal expenditure stimulus in the United States, properly adjusted for the declining fiscal expenditure of the fifty states, was close to zero in 2009. While the Federal government stimulus prevented a net decline in aggregate fiscal expenditure, it did not stimulate the aggregate expenditure above its predicted mean. We discuss the implications of limitations on states' ability to run deficits for the design of fiscal stimulus at the federal level. We devote particular attention to intertemporal moral hazard concerns in a federal fiscal system, and ways to address these concerns. |
| JEL: | E62 F36 H5 H77 |
| Date: | 2010–02 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:15784&r=cba |
| By: | Asani Sarkar; Jeffrey Shrader |
| Abstract: | The small decline in the value of mortgage-related assets relative to the large total losses associated with the financial crisis suggests the presence of financial amplification mechanisms, which allow relatively small shocks to propagate through the financial system. We review the literature on financial amplification mechanisms and discuss the Federal Reserve's interventions during different stages of the crisis in light of this literature. We interpret the Fed's early-stage liquidity programs as working to dampen balance sheet amplifications arising from the positive feedback between financial constraints and asset prices. By comparison, the Fed's later-stage crisis programs take into account adverse-selection amplifications that operate via increases in credit risk and the externality imposed by risky borrowers on safe ones. Finally, we provide new empirical evidence that increases in the Federal Reserve's liquidity supply reduce interest rates during periods of high liquidity risk. Our analysis has implications for the impact on market prices of a potential withdrawal of liquidity supply by the Fed. |
| Keywords: | Assets (Accounting) ; Bank assets ; Interest rates ; Bank liquidity ; Financial crises ; Federal Reserve System |
| Date: | 2010 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fednsr:431&r=cba |
| By: | Ravallion, Martin |
| Abstract: | To the surprise of many observers, the 2005 International Comparison Program (ICP) found substantially higher purchasing power parity (PPP) rates, relative to market exchange rates, in most developing countries. For example, China’s price level index -- the ratio of its PPP to its exchange rate -- doubled between the 1993 and 2005 rounds of the ICP. The paper tries to explain the observed changes in PPPs. Consistently with the Balassa-Samuelson model, evidence is found of a"dynamic Penn effect,"whereby more rapidly growing economies experience steeper increases in their price level index. This effect has been even stronger for initially poorer countries. Thus the widely-observed static (cross-sectional) Penn effect has been attenuated over time. On also taking account of exchange rate changes and prior participation in the ICP’s price surveys, 99 percent of the variance in the observed changes in PPPs is explicable. Using a nested test, the World Bank’s longstanding method of extrapolating PPPs between ICP rounds using inflation rates alone is out performed by the model proposed in this paper. |
| Keywords: | Markets and Market Access,Economic Theory&Research,Emerging Markets,E-Business,ICT Policy and Strategies |
| Date: | 2010–03–01 |
| URL: | http://d.repec.org/n?u=RePEc:wbk:wbrwps:5229&r=cba |
| By: | Cherchye, Laurens; Demuynck, Thomas; De Rock, Bram |
| Abstract: | Focusing on the testable implications on the equilibrium manifold, we show that the rationalizability problem is NP-complete. Subsequently, we present an integer programming (IP) approach to characterizing general equilibrium models. This approach avoids the use of the Tarski-Seidenberg algorithm for quantifier elimination that is commonly used in the literature. The IP approach naturally applies to settings with any number of observations, which is attractive for empirical applications. In addition, it can easily be adjusted to analyze the testable implications of alternative general equilibrium models (that include, e.g., public goods, externalities and/or production). Further, we show that the IP framework can easily address recoverability questions (pertaining to the structural model that underlies the observed equilibrium behavior), and account for empirical issues when bringing the IP methodology to the data (such as goodness-of-fit and power). Finally, we show how to develop easy-to-implement heuristics that give a quick (but possibly inconclusive) answer to whether or not the data satisfy the general equilibrium models. |
| Keywords: | General equilibrium; Equilibrium manifold; Exchange economies; Production economies; NP-completeness; Nonparametric restrictions; GARP; integer programming; |
| Date: | 2009–07 |
| URL: | http://d.repec.org/n?u=RePEc:ner:leuven:urn:hdl:123456789/237726&r=cba |
| By: | Benjamin Carton; Karine Herve |
| Abstract: | Most studies on equilibrium exchange rates focus on a limited number of G7 countries. But in a situation of world imbalances, emerging countries can no longer be excluded. The study of all equilibrium exchange rates is delicate. First, the trade model has to be balanced at the aggregate level. This paper suggests a method to achieve world balance both in volume and in value. Second, the N-1 bilateral exchange rates cannot ensure that the N areas will reach their macroeconomic equilibrium simultaneously. This paper examines the existing solutions to solve the N-1 problem and proposes an alternative which minimizes the distance to the current-account targets. Finally, in order to compare the relevance of the different methodologies, FEERs are calculated for 19 industrialized and developing countries. |
| Keywords: | Exchange rates; current account adjustment |
| JEL: | F31 F32 |
| Date: | 2010–02 |
| URL: | http://d.repec.org/n?u=RePEc:cii:cepidt:2010-02&r=cba |
| By: | Michiel de Pooter (federal Reserve Board); Francesco Ravazzolo (Norges Bank (Central Bank of Norway)); Dick van Dijk (Erasmus University, Rotterdam) |
| Abstract: | We examine the importance of incorporating macroeconomic information and, in particular, accounting for model uncertainty when forecasting the term structure of U.S.interest rates. We start off by analyzing and comparing the forecast performance of several individual term structure models. Our results confirm and extend results found in previous literature that adding macroeconomic information, through factors extracted from a large number of individual series, tends to improve interest rate forecasts. We then show, however, that the predictive power of individual models varies over time significantly. Models with macro factors are the more accurate in and around recession periods. Models without macro factors do particularly well in low-volatility subperiods such as the late 1990s. We demonstrate that this problem of model uncertainty can be mitigated by combining individual model forecasts. Combining forecasts leads to encouraging gains in predictability, especially for longer-dated maturities, and importantly, these gains are consistent over time. |
| Keywords: | Term structure of interest rates, Nelson-Siegel model, Affine term structure model, macro factors, forecast combination, Model Confidence Set |
| JEL: | C5 C11 C32 E43 E47 |
| Date: | 2010–03–01 |
| URL: | http://d.repec.org/n?u=RePEc:bno:worpap:2010_01&r=cba |
| By: | Fernando Alexandre (Universidade do Minho - NIPE); Pedro Bação (GEMF and Universidade de Coimbra); João Cerejeira (Universidade do Minho - NIPE); Miguel Portela (Universidade do Minho - NIPE and IZA) |
| Abstract: | There is increasing evidence that the interaction between shocks and labour market institutions is crucial to understanding the dynamics of employment. In this paper, we show that the inclusion of labour adjustment costs in a trade model affects the impact of exchange rate movements on employment. We also explore how labour market rigidities interact with the degree of exposure to international competition and with the technology level. Our model-based predictions are consistent with estimates obtained using panel data for 23 OECD countries. Namely, our estimates suggest that employment in low-technology sectors that have a very high degree of openness to trade and are located in countries with more flexible labour markets are more sensitive to exchange rate changes. Our model and estimates therefore provide additional evidence on the importance of interacting external shocks and labour market institutions. |
| Keywords: | exchange rates, international trade, job ?ows, employment protection. |
| JEL: | J23 F16 F41 |
| Date: | 2010 |
| URL: | http://d.repec.org/n?u=RePEc:nip:nipewp:2/2010&r=cba |
| By: | Gauti Eggertsson |
| Abstract: | This paper proposes a new paradox: the paradox of toil. Suppose everyone wakes up one day and decides they want to work more. What happens to aggregate employment? This paper shows that, under certain conditions, aggregate employment falls; that is, there is less work in the aggregate because everyone wants to work more. The conditions for the paradox to apply are that the short-term nominal interest rate is zero and there are deflationary pressures and output contraction, much as during the Great Depression in the United States and, perhaps, the 2008 financial crisis in large parts of the world. The paradox of toil is tightly connected to the Keynesian idea of the paradox of thrift. Both are examples of a fallacy of composition. |
| Keywords: | Employment ; Econometric models ; Interest rates ; Deflation (Finance) ; Productivity |
| Date: | 2010 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fednsr:433&r=cba |
| By: | Filardo, Andrew (Asian Development Bank Institute); Genberg, Hans (Asian Development Bank Institute) |
| Abstract: | Monetary policy frameworks in the Asia and Pacific region have performed well in the past decade as judged by inflation outcomes. We argue that this is due to three principal factors: (i) central banks have focused on price stability as the primary objective of monetary policy, (ii) institutional setups have been put in place that are supportive of the central banks' abilities to carry out their objectives, and (iii) economic policies in general have been supportive of the pursuit of price stability, in particular the adoption of prudent fiscal policies that have reduced concerns of fiscal dominance. <p>The financial systems in the region have also held up well in the face of the current crisis, notwithstanding more adverse liquidity conditions in several markets and pressures on certain exchange rates that spilled over from the West. <p>It may nevertheless be useful to ask whether changes in monetary policy frameworks should be contemplated. This paper concludes that: (i) for economies with well developed financial markets, there may be little value in using unconventional monetary policies in the absence of financial crises, because in normal times such policies are not likely to be effective and may further reduce the efficiency of the financial market; (ii) a good case can be made for elevating the role of the misalignment of asset prices (including exchange rates) and financial imbalances in the conduct of monetary policy; and (iii) financial stability should take on greater importance as an objective for public policy. Whether and how much of the financial stability objective should be assigned to the central bank is still an open question. |
| Keywords: | asian monetary policy frameworks; pacific monetary policy frameworks; future changes; monetary policy strategies; asia monetary policy |
| JEL: | E52 E58 |
| Date: | 2010–02–15 |
| URL: | http://d.repec.org/n?u=RePEc:ris:adbiwp:0195&r=cba |
| By: | Duo Qin (Queen Mary, University of London) |
| Abstract: | This paper examines the history of econometrics through a particular case study - modelling the tradeoff between inflation and unemployment. It focuses on the questions of what econometric tools modellers would choose to model the tradeoff, how their choices helped shape the ways that they obtained, interpreted and theorised the empirical evidence and how their different concerns and the different problems that they encountered has fed back into the development of econometrics. The study reveals that much of the interaction between econometrics and economics involved modellers taking certain tradeoffs between theory and data, and their different positions generated disputes, factions as well as confusions. It also reveals that the history of modelling the tradeoff mirrors the evolving process of how the Cowles structural modelling paradigm in econometrics became consolidated, challenged, reformed or abandoned. |
| Keywords: | Phillips curve, History of econometrics |
| JEL: | B23 |
| Date: | 2010–02 |
| URL: | http://d.repec.org/n?u=RePEc:qmw:qmwecw:wp661&r=cba |
| By: | Nabil Ben Arfa (University of Nice - Sophia Antipolis; Faculty of Law, Political Science, Economic and Management; C.E.M.A.F.I; Macroeconomics and International Finance Center) |
| Abstract: | This paper deals with the synchronization of business cycles and economic shocks between the euro area and acceding countries. We therefore extract the business cycle component of output by using Hodrick-Prescott filter. Supply and demand shocks are recovered from estimated structural VAR models of output growth and inflation using long run restriction (Blanchard and Quah). We then check the (A) symmetry of these shocks by calculating the correlation between euro area shocks and those of the different acceding countries. We find that several acceding countries have a quite high correlation of demand shocks with the euro area however supply shocks are asymmetric; the correlation between euro area and central and east European countries (CEECs) is negative. We therefore conclude that joining the European Monetary Union is not yet possible: central and east European countries have to make structural changes to join the European Monetary Union. |
| Keywords: | Central and East European countries, Euro area, SVAR models, Hodrick- Prescott filter, Symmetric-asymmetric shocks |
| JEL: | E32 F42 |
| Date: | 2009–03 |
| URL: | http://d.repec.org/n?u=RePEc:voj:wpaper:200912&r=cba |
| By: | Kosta Josifidis (University of Novi Sad, Serbia; Faculty of Economics in Subotica, Department of European Economics and Business, Novi Sad); Jean-Pierre Allegret (Universit 0064e Nice Sophia-Antipolis (France)); Emilija Beker Pucar (University of Novi Sad, Serbia; Faculty of Economics in Subotica, Department of European Economics and Business, Novi Sad) |
| Abstract: | The paper explores (former) transition economies, Poland, Czech Republic, Slovakia and the Republic of Serbia, concerning abandonment of the exchange rate targeting and fixed exchange rate regimes and movement toward explicit/implicit inflation targeting and flexible exchange rate regimes. The paper identifies different subperiods concerning crucial monetary and exchange rate regimes, and tracks the changes of specific monetary transmission channels i.e exchange rate channel, interest rate channel, indirect and direct influences to the exchange rate, with variance decomposition of VAR/VEC model. The empirical results indicate that Polish monetary strategy toward higher monetary and exchange rate flexibility has been performed smoothly, gradually and planned, compared to the Slovak and, especially, Czech case. The comparison of three former transition economies with the Serbian case indicate strong and persistent exchange rate pass-through, low interest rate pass-through, significant indirect and direct influence to the exchange rate as potential obstacles for successful inflation targeting in the Republic of Serbia. |
| Keywords: | Exchange rate targeting, Inflation targeting, Intermediate exchange rate regimes, Monetary transmission channels |
| JEL: | E42 E52 F41 |
| Date: | 2009–03 |
| URL: | http://d.repec.org/n?u=RePEc:voj:wpaper:200922&r=cba |
| By: | Rangan Gupta (Department of Economics, University of Pretoria); Josine Uwilingiye (Department of Economics, University of Pretoria) |
| Abstract: | This paper uses the general equilibrium monetary endogenous growth model of Dotsey and Ireland (1996), in which inflation distorts a variety of marginal decisions, to evaluate the welfare cost of inflation in South Africa – a country, where, since the February of 2000, the sole objective of the central bank has been to keep the inflation rate within the target band of 3 percent to 6 percent. Although individually none of the distortions is very large, they combine to yield substantial welfare cost estimates ranging between 0.70 percent of GDP to 1.33 percent of GDP for the lower and upper limits of the target band. More importantly, the welfare costs obtained here are at least three times more than those derived previously for the South African economy based on partial equilibrium approaches. These higher estimates, thus, tend to make a case for a possibly lower and narrower target band. |
| Keywords: | Inflation, Growth, Welfare |
| JEL: | E31 |
| Date: | 2010–02 |
| URL: | http://d.repec.org/n?u=RePEc:pre:wpaper:201002&r=cba |
| By: | Monique Reid |
| Date: | 2009 |
| URL: | http://d.repec.org/n?u=RePEc:rza:wpaper:131&r=cba |
| By: | James Heintz; Léonce Ndikumana |
| Abstract: | <p>This working paper examines the question of whether inflation targeting monetary policy is an appropriate framework for sub-Saharan African countries. The paper presents an overview of inflation targeting, reviews the justification for the regime, and summarizes some major critiques. </p><p>Monetary policy responses to inflation depend on the source of inflationary pressures. Therefore, the determinants of inflation in African countries are<br />investigated, using dynamic panel data, and the implications for inflation targeting are discussed. These issues are examined in greater detail for the two African countries which have formally adopted inflation targeting, South Africa and Ghana. </p><p>The analysis is placed in the context of the global economic crisis. The paper concludes with a discussion of alternative approaches to monetary policies and the institutional constraints that would need to be addressed to allow central banks to play a stronger developmental role in sub-Saharan African countries.</p> |
| Keywords: | Sub-Saharan Africa, inflation, development, monetary policy, finance |
| JEL: | E31 E52 O55 O11 |
| Date: | 2010 |
| URL: | http://d.repec.org/n?u=RePEc:uma:periwp:wp218&r=cba |