Monetary Policy Rules for Managing Aid Surges in Africa

Christopher Adam (), Edward Buffie, O'Connell, Stephen and Catherine Pattillo

No RP2008/77, Working Papers from World Institute for Development Economic Research (UNU-WIDER)

Abstract: We examine the properties of alternative monetary policy rules in response to large aid surges in low-income countries characterized by incomplete capital market integration and currency substitution. Using a dynamic stochastic general equilibrium model, we show that simple monetary rules that stabilize the path of expected future seigniorage for a given aid flow have attractive properties relative to a range of conventional alternatives, including those involving heavy reliance on bond sterilization or a commitment to a pure exchange rate float. These simple rules, which are shown to be robust across a range of fiscal responses to aid inflows, appear to be consistent with actual responses to recent aid surges in a range of post-stabilization countries in Sub-Saharan Africa.

Keywords: monetary policy; currency substitution; aid; Africa; DSGE models (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-afr, nep-cba, nep-dge, nep-mac and nep-mon
Date: 2008
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Related works:
Working Paper: Monetary Policy Rules for Managing Aid Surges in Africa (2007)
Working Paper: Monetary Policy Rules For Manging Aid Surges In Africa (2007)
Journal Article: Monetary Policy Rules for Managing Aid Surges in Africa (2009)
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Persistent link: http://EconPapers.repec.org/RePEc:unu:wpaper:rp2008-77

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