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Monetary Policy Rules for Managing Aid Surges in Africa

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

No RP2008-77, WIDER Working Paper Series 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.

Keywords: Economic assistance and foreign aid; Mathematical models (Equilibrium (Economics)); Foreign exchange; Monetary policy (search for similar items in EconPapers)
Date: 2008
New Economics Papers: this item is included in nep-afr, nep-cba, nep-dge, nep-mac and nep-mon
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (5)

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