Reactions to Shocks and Monetary Policy Regimes: Inflation Targeting Versus Flexible Currency Board in Sub-Saharan Africa

Fadia Al Hajj, Gilles Dufrénot (), Kimiko Sugimoto and Romain Wolf
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Fadia Al Hajj: GREQAM - Groupement de Recherche en Économie Quantitative d'Aix-Marseille - EHESS - École des hautes études en sciences sociales - AMU - Aix Marseille Université - ECM - École Centrale de Marseille - CNRS - Centre National de la Recherche Scientifique
Kimiko Sugimoto: 大阪学院大学 - Osaka Gakuin University

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Abstract: The paper examines the monetary policy actions through which central banks in sub-Saharan Africa have tried to eliminate the negative impacts of the shocks facing their economies. We compare two different monetary policy regimes: a currency board regime (in the CFA zone) and an inflation targeting policy regime (Ghana and South Africa) when central banks respond to demand, supply, and fiscal shocks. We extend the usual forecasting and policy analysis system models to replicate the economic features of these economies during the period 2002–12 and to evaluate the impact of several policies in response to these shocks. We find that both policies are inappropriate in helping the economies escape from the effects of negative demand shocks, both are essential when negative shocks to primary balance occur, while inflation targeting dominates the currency board regime as a strategy to cope with positive shocks to inflation.

Keywords: African countries; Currency board; E52; F41; Inflation target; Q33 (search for similar items in EconPapers)
Date: 2015-12
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Published in The Developing Economies, 2015, 53 (4), pp.237--271. ⟨10.1111/deve.12088⟩

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Journal Article: Reactions to Shocks and Monetary Policy Regimes: Inflation Targeting Versus Flexible Currency Board in Sub-Saharan Africa (2015)
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Persistent link: https://EconPapers.repec.org/RePEc:hal:journl:hal-01457315

DOI: 10.1111/deve.12088

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