EconPapers    
Economics at your fingertips  
 

Price and liquidity puzzles of a monetary shock: Evidence from indebted African economies

Stella Muhanji, Christopher Malikane () and Kalu Ojah ()

Economic Modelling, 2013, vol. 33, issue C, 620-630

Abstract: Price and liquidity puzzles have been identified as two major counterintuitive findings arising from monetary shocks. We investigate their presence in eleven African countries, using a dynamic stochastic general equilibrium model designed for indebted small open-economies. Our simulations reveal that the majority of African countries report a price puzzle whereas only three countries exhibit liquidity effect. In many of the sampled countries, a positive money growth shock drives interest rates up, but consumption and output fall in contrast to the conventional view. External debt increases in response to money growth shock, exchange rate appreciates and inflation falls. Money growth shocks are transmitted to the economy through the exchange rate channel when uncovered interest rate parity condition holds. Our findings therefore appear to suggest that monetary policy in Africa should prioritize foreign debt stabilization by reacting more to output gap than to inflation.

Keywords: Price puzzle; Liquidity puzzle; Monetary policy; External debt; DSGE model; Africa (search for similar items in EconPapers)
JEL-codes: C68 E31 E43 E52 F43 (search for similar items in EconPapers)
Date: 2013
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1) Track citations by RSS feed

Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S0264999313001909
Full text for ScienceDirect subscribers only

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:eee:ecmode:v:33:y:2013:i:c:p:620-630

DOI: 10.1016/j.econmod.2013.04.048

Access Statistics for this article

Economic Modelling is currently edited by S. Hall and P. Pauly

More articles in Economic Modelling from Elsevier
Bibliographic data for series maintained by Nithya Sathishkumar ().

 
Page updated 2021-04-12
Handle: RePEc:eee:ecmode:v:33:y:2013:i:c:p:620-630