Working Paper 108 - Is there a Case for Formal Inflation Targeting in Sub-Saharan Africa?

James Heintz () and Leonce Ndikumana

Working Paper Series from African Development Bank

Abstract: This paper examines the question of whetherinflation targeting monetary policy is anappropriate framework for sub-SaharanAfrican countries. The paper presents anoverview of inflation targeting, reviews thejustification for the regime, and summarizessome major critiques. Monetary policyresponses to inflation depend on the sourceof inflationary pressures. Therefore, thedeterminants of inflation in African countriesare investigated, using dynamic panel data,and the implications for inflation targetingare discussed. These issues are examined ingreater detail for the two African countrieswhich have formally adopted inflationtargeting, South Africa and Ghana. Theanalysis is placed in the context of the globaleconomic crisis. The paper concludes with adiscussion of alternative approaches tomonetary policies and the institutionalconstraints that would need to be addressedto allow central banks to play a strongerdevelopmental role in sub-Saharan Africancountries.

Date: 2010-05-08
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